While price growth in Canadian residential markets has apparently entered a cool down period recently, potential hazards further down the line might impel the housing segment towards a long-feared correction, according to a new report from Moody’s Analytics.
“Given that most of the [recent] house price increases took place in Toronto and Vancouver, there is still the downside risk that higher mortgage rates and the borrower stress tests could push down demand in the Atlantic and Prairie provinces, leading to a full house price correction and a perceptible drop in sales in these regions,” Moody’s economist Andrew Carbacho-Burgos said, as quoted by The Globe and Mail.
The well-intentioned measures, which are targeted towards outsized price growth, “may prove too strong and may precipitate not just a house price correction, but also an extended decline in sales and possibly a reduction in home ownership,” Carbacho-Burgos warned.
Over the next five years, annualized housing price growth in Canada’s single-family segment is expected to be at 1.5%. This was just half of Moody’s initial projection of 3% last May.
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BMO Capital Markets senior economist Robert Kavcic aired similar observations last month, noting that the confluence of such factors will have a chilling effect on both sales activity and general interest in home ownership.
“We are going to see very modest price growth across all markets,” BMO Capital Markets senior economist Robert Kavcic said. “We are seeing Toronto and Vancouver still adjusting to past policy measures and Bank of Canada rate hikes.”
BMO chief economist Douglas Porter supported the assertion, saying that on average, the pace of borrowing nationwide is steadily grinding to a crawl.
“The slowdown in credit – most notably, overall mortgages – syncs well with the broader cooling in housing market activity,” Porter explained. “The biggest chill has been in mortgage growth (not surprisingly), which has softened to a 3.6% year-over-year clip from an average growth rate of about 6% in the past two years,” he added.
“We are on the cusp of seeing the slowest growth in mortgage balances outstanding since the early 1980s.”