News & Resources

National Housing Update: Why Prices are Declining and What to Expect for 2018

March 26, 2018
4 mins
A realtor helps a young couple with paperwork

Three months into 2018, it seems like the Canadian housing market is down again with sales volume dropping 16.9% in February compared to this time last year. According to the Canadian Real Estate Association (CREA), there was also a 6.5% drop compared to January, which is the biggest decline in nearly five years.

This shouldn’t be a huge surprise since the Office of the Superintendent of Financial Institutions (OSFI) introduced tighter mortgage rules effective January 2018. As a result, some homeowners rushed to make their purchase before the new rules took effect, which is why there was a lot of sales activity leading to the end of 2017.

National prices on the decline

When looking across the country, the average price of homes sold fell 5% from one year ago to $494,000. If you remove the hot markets of the Greater Vancouver and Greater Toronto, then prices would fall another $112,000 – averaging at $382,000.

“Sales activity is down in many, but not all, housing markets compared to the end of last year, and varies depending on price range, location and property type. All real estate is local” said CREA President Andrew Peck in the CREA’s monthly housing stats announcement.

Despite the decline in sales, the MLS Home Price Index still rose by 6.9% year-over-year, which means Canadian real estate prices are still seeing gains; they’ve just been moving at a much slower pace compared to recent years.

Amount of available homes for sale is up

In the Greater Toronto and Vancouver areas, there’s definitely still a supply issue, but overall, the CREA reports that home listings were up 8.1% in February compared to the 20% drop we saw in January. Although this news is positive, the numbers are still down compared to every month in 2017 with the exception of January 2017.

Still, three-quarters of the Canadian market is still relatively balanced. Inventory available is currently sitting at 5.3 months – this refers to how long it would take to for all available homes to be sold. In addition, housing stock is still at its highest level in over two years.

Whether you’re a first time home buyer or buying your second, third or fourth home, it pays to compare mortgage rates with RATESDOTCA. With prices on the decline and more homes on the market, now is the time to look into getting the best rate for your dream home.

The market sees mixed numbers across the country

Trends across the country appear to be varied. Montreal has seen growth of 6.1% while the GTA saw a modest 3.2% gain. Sales in the Vancouver area saw a continued decline since 2016, but there were also small drops in Regina and Saskatoon at 4.8 and 3.8%, respectively.

“Momentum for home sales activity going into the second quarter is also likely to weighed down by housing market uncertainty in BC, where new housing policies were introduced toward the end of February,” said Gregory Klump, CREA’s Chief Economist in the announcement.

Recent announcements may have affected sales

As mentioned earlier, new mortgage rules introduced by OSFI came into play on Jan. 1. Borrowers that have an uninsured mortgage must now pass the stress test at the Bank of Canada’s five-year benchmark rate which is currently sitting at 5.15% or 200 basis points above their current contracted mortgage rate.

This change effectively reduces the amount of mortgage you would qualify for, and in knowing that, it seems as if people moved up their home purchase before the end of 2017, which likely explains the slowing in sales during the first two months of 2018.

In addition, the Bank of Canada increased its key interest rate to 1.25% back in January which further reduced affordability. This was the third hike since last summer, which has effectively priced some people out of the market, though the Bank maintained rates at its last announcement on March 7.

When the next Bank of Canada announcement comes out on April 18, we’ll get a better picture of how the Canadian economy is performing.

Barry Choi

Barry Choi is a personal finance and budget travel expert at Moneywehave.com. He has been quoted by media in Canada and the United States including The Financial Post, The Toronto Star, Business Insider, The Globe and Mail, and has appeared on HuffPost Live.

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