The average cost of rent in Canadian cities for December 2018 (MAP)
The holiday season is here, and if you’re hoping that keys to a new place will be under your Christmas tree, you could be in for a surprise as some rental markets in Canada are cooling off.
This month, according to Padmapper, 11 Canadian cities saw an upward trend, nine decreased, and four remained flat. The top five priciest markets in Canada remained, nearly unchanged from last month.
Once again, Toronto took the top spot for the most expensive rent in the country. One bedroom rent increased 1.8% to $2,260 and two bedrooms increased slightly by 0.7% to $2,850. Two bedroom rent in the city is up 15.9% since this time last year.
Vancouver is the second most expensive city in Canada. But renters should note that one bedroom prices decreased 0.5% to $2,100, and two bedrooms also dropped 0.3% to $3,150.
Burnaby, BC, stayed put as the third priciest city in Canada, despite one bedroom rent falling 0.6% to $1,570. Two bedrooms saw a slight increase, growing 0.4% to $2,260.
In fourth place, Montreal’s one-bedroom rent grew 1.4% to $1,450, and two bedrooms dropped 2.2% to $1,780.
Victoria, BC, was this month’s new addition to the top-five priciest cities in Canada with one bedroom rent jumping 5.3% to $1,390, while two bedrooms grew 4.9% to $1,510.
This month, Abbotsford, BC, saw the largest monthly one bedroom rental growth rate in the country, with a 5.6% increase, bringing prices to $950. Two bedroom prices also increased by 1.9% to $1,080.
The battle for the cheapest one-bedroom rent in the country once again goes to Windsor, Ontario, where you can you can rent a single-room suite for a cool $740 per month.
And if you’re interested in a two-bedroom place, head to St. John’s, Newfoundland, where prices are as low as $890. Now that’s a steal.
No increase in 2019 for new fixed-rate mortgages: BCREA forecast.
With a recent decline in bond yields, lenders have pushed interest rates as high as they will go for a year, predicts association.
Canadians may be anxious about mortgage interest rate hikes, but those applying for new fixed-rate mortgages are likely to have a breather for a year, according to a new economic forecast.
In its latest Mortgage Rate Forecast, the B.C. Real Estate Association’s economists are predicting that the average five-year fixed rate being offered by lenders will remain flat in 2019 – even slightly declining, to 3.64 per cent, in the first quarter before going back up to the current 3.74 per cent in Q2.
In their report, BCREA economists Cameron Muir and Brendon Ogmundson wrote that declining government bond yields – which dictate fixed-rate mortgages – combined with impact of the federal mortgage stress test, are the reason for this change in expectations.
The authors wrote, “Declining oil prices, the stronger than expected impact of the B20 mortgage stress test and generally soft economic data in recent weeks have prompted a swift change in market sentiment. Since early November, the 5-year bond yield has dropped close to 50 basis points back to levels last seen in June, prior to two rate hikes by the Bank of Canada.”
The stress test, which applies to all mortgage applications, requires that borrowers qualify on their income as if they were paying the Bank of Canada posted interest rate, or their agreed contract repayment rate plus two per cent, whichever is the higher. The BCREA observed that even though the Bank of Canada posted rate has only increased by 20 basis points this year, to 5.34 per cent, most lenders have raised their discounted contract rates by more than that amount. The average five-year fixed rate is currently 3.74 per cent, which is up 35 basis points from Q1 2018. That means the average fixed-rate mortgage applicant now has to qualify at 5.74 per cent.
The BCREA said, “It is unclear if borrowers can bear further mortgage rate increases, with growth in mortgage credit already approaching record lows.”
Fixed-rate mortgages make up about 80 per cent of Canadian mortgages – but for variable rate borrowers, it’s a different story. The BCREA is expecting that the Bank of Canada will continue to increase its overnight target rate, from the current 1.75 per cent to 2.5 per cent, over the course of 2019 and 2020, with two jumps in 2019. This will variable-rate mortgages by a similar amount. However, it added a caveat that if the oil shock in Alberta is prolonged, the federal bank may not raise the overnight rate at all until 2020.
The BCREA has previously laid responsibility for the slowing housing market squarely at the feet of the mortgage stress test, which has reduced many buyers’ purchasing power by as much as 20 per cent.
Members of Canada’s building industry recently called for a reduction or even a full repeal of the mortgage stress test, saying that the program had “a very targeted outcome” that has “been achieved, so it’s overkill now.”
The BCREA’s 2019 mortgage forecast was released the day before the Canada Mortgage and Housing Corporation published a study that found Metro Vancouver residents have the highest household debt ratios in the country and are the most vulnerable to interest rate hikes.
These Canadian Housing Markets Took A Beating In 2018. What Does 2019 Have In Store?
Toronto should stay stable, but Vancouver’s correction is expected to continue.
2018 began with a steep nationwide drop in housing activity. Stricter mortgage qualification rules pushed buyers to the sidelines, as year-over-year double-digit sales decreases became the norm.
Of course, some markets had a rougher year than others. Toronto, with its strong early-2017 performance, had a particularly cool start to the year, as did Hamilton. In the west, the Calgary market is continues to deal with the effects of low oil prices which sunk the housing market in 2015, while Vancouver is still adjusting to a stricter foreign buyers tax that was increased in February.
What does 2019 have in store for these troubled markets? Livabl has combed through the latest forecasts from industry experts, to give you an idea of what to expect.
Toronto should remain stable
With its record performance in 2017, the Toronto housing market became the epitome of the old adage “the bigger they are, the harder they fall” in 2018.
While activity took its steepest dive in the spring of 2017, with the introduction of the Ontario government’s Fair Housing Plan, sales dropped dramatically in January, as the market struggled to adjust to the new mortgage stress test.
Over the summer months, the city began to see a slow month-over-month rise in sales and prices. That’s led several experts — including Phil Soper, president and CEO of Royal LePage — to predict a relatively cool, but stable, 2019. Sales were up 6 percent year-over-year in October, while listings fell a slight 2.7 percent.
“The numbers [you saw] in the GTA [in October] are the direct result of strong demand amid relatively limited supply,” Soper tells Livabl.
It’s a sentiment echoed by TD economist Rishi Sondhi, who wrote in his latest forecast that the Toronto housing market would remain balanced in the new year, as strong demand pushed up against deteriorating housing affordability.
“Toronto’s market has been balanced for over a year now, manifesting in slower price appreciation,” he writes. “Strained affordability conditions, exacerbated by rising borrowing costs, will continue to restrain demand.”
Hamilton will cool slightly
The Hamilton market, which has long been a refuge for those priced-out of Toronto, largely mimicked the larger city’s sales trajectory in 2018.
Home sales are predicted to fall 15.9 percent year-over-year by the end of 2018, according to the latest data from Central 1 Credit Union.
Many industry experts are predicting that the cooler period will last well into 2019, while noting that the city’s strong fundamentals will keep things from changing too drastically.
“Given that Toronto has been held back by significant pressure on housing affordability, cities like Hamilton…within commuting distance of Toronto jobs, have served as a release valve.”Robert Kavcic, Bank of Montreal
“What you have in Hamilton is a relatively affordable market, that allows those who cannot afford to live in Toronto a chance to own a home, while still commuting to work,” Hamilton-based realtor Mike Heddle tells Livabl. “That’s a trend that’s not going to change any time soon.”
Earlier this year, BMO economist Robert Kavcic named Hamilton one of Canada’s most attractive labour markets, arguing that the city’s strong job market will likely draw prospective homeowners in the new year.
“Given that Toronto has been held back by significant pressure on housing affordability, cities like Hamilton…within commuting distance of Toronto jobs, have served as a release valve,” he wrote.
Calgary oversupply issue to persist
At first glance, there’s something that appears to bode well for Calgary’s ownership housing market: the rental market is tightening. Normally, this has a knock-on effect for home sales. As a vacancy rate trends lower, rents get more expensive due to competition for apartments, and some decide it’s worth it to purchase a home.
This time is different, suggests one expert. Lower oil prices have persistently taken a toll on home sales and prices in Calgary, and even though the rental market looks to be picking up, Keith Reading, director of research for Morguard, recently said it would be 18 months before demand is sufficient to drive rents up.
From there, it would still be a number of years before any meaningful improvements are seen on the resale and new-home markets.
While the Calgary Real Estate Board has yet to publish its final lookahead at 2019, its chief economist Ann-Marie Lurie recently gave Livabl an idea of what to expect.
“The current situation that we’re in is we have an oversupplied market, prices have been trending down, and we just haven’t seen the pickup in the economy — at least in Calgary — as what was expected, so that’s really what we’re seeing leading into next year,” Lurie said in an interview earlier this month.
Vancouver will continue to correct
When it comes to Vancouver’s housing market, the peaks and troughs of various forecasts from analysts vary as wildly as the mountainous landscape surrounding the city.
For instance, credit union Central 1 predicts the median price of a Metro Vancouver home will drop by about 3 percent next year before remaining flat in 2020. “A modest housing price correction is underway in the region triggered by rising interest rates and federal mortgage criteria which is intensified by provincial policy measures,” writes Bryan Yu, Central 1’s Deputy Chief Economist, noting a recent hike to the regional foreign-homebuyer tax and proposed speculation taxes.
Compare that to Capital Economics’ latest analysis: based on rising levels of inventory, activity drying up, and tougher federal mortgage rules introduced back in January, home resale prices could fall 5 percent next year, in the research firm’s estimation.
Perhaps the most dramatic prediction comes by way of Eitel Insights, which used stock market-style analysis to forecast the future of detached home prices in Vancouver. While the benchmark price of a detached home was $1,524,000 last month, Eitel Insights anticipates that number will fall to $1.4 million between next year and 2021 at the latest.
Like Capital Economics and Central 1, Dane Eitel, the owner of Eitel Insights, bases his bearish take on the impact of the federal government’s move at the beginning of the year to extend stress testing to uninsured mortgages. Previously, a borrower could put down 20 percent for a loan from a big Canadian bank and sidestep the test.
While the relative affordability of multi-family dwellings in Vancouver has provided somewhat of a buffer for the pre-construction condo market despite new mortgage qualifying regulations, rising supply levels are expected to put downward pressure on prices in this segment, too. Already, new-home prices are down between 5 and 15 percent, depending on location and housing type, according to Urban Analytics.
