Canada’s residential real estate market showed strong growth in the fourth quarter of 2015, led by hot Vancouver and Toronto markets, finds Royal LePage.
In 2016, the real estate company expects continued price increases in most markets, but not at the pace that has been the recent norm. Instead, the national real estate market is expected to slow later this year, principally due to the effects of a dampened economy in Western Canada and eroding affordability in Toronto and Vancouver.
The Royal LePage National House Price Composite, compiled from property value data in 53 of the nation’s largest markets, finds the price of a home increased 6.5% year-over-year to $500,688 in the fourth quarter. The price of a two-storey home rose 7.7% year-over-year to $610,134, and the price of a bungalow increased 5.4% to $420,082.
During the same period, the price of a condo increased 3.1% to $341,448. Royal LePage forecasts that the aggregate price of a home in Canada will increase 4.1% for 2016 compared to 2015.
“The frenetic pace of our country’s largest housing markets should moderate throughout the year ahead,” says Phil Soper, president and chief executive officer, Royal LePage, who adds Greater Vancouver- and Toronto-area prices will settle down thanks to real estate appreciation that has significantly outpaced job and wage growth.
“Through the recent period of depressed oil prices, property prices in Canada’s energy-centric regions, particularly Alberta and Newfoundland and Labrador, were more resilient than most onlookers had expected,” says Soper. “Consumers, reluctant to sell their homes at what they perceived to be a discount to their true value, simply withdrew from the market, resulting in steady house prices and a drop in unit sales volume. In the coming year we expect to see the delayed impacts of the slowing economy and rising unemployment on the regions’ housing stock, with moderate declines in home values.”
In Quebec, home prices were relatively flat during 2015. A lower Canadian dollar and robust U.S. economic growth should fuel the service and manufacturing sectors in 2016, improving employment levels and consumer confidence, and lifting home prices.
“Montreal’s slow-growing real estate market is expected to be much more vigorous in 2016,” said Soper. “A recent economic opportunity study pointed to Montreal as Canada’s third ‘city to watch’ in 2016, just behind Vancouver and Toronto in growth potential.”
The price of residential real estate in Canada will be more influenced by macroeconomic factors than by housing-specific variables, such as tighter regulation in the mortgage industry.
“The new federal government moved quickly with a policy change in the minimum down payment required to secure mortgage insurance,” says Soper. “The change will produce an added benefit akin to a slight tap on the brake for our two most costly cities. On a nationwide basis, we expect the number of transactions that this will impact to be minimal – significantly less than the initial industry reaction would lead consumers to believe.”
Further, the Bank of Canada is expected to keep its overnight rate steady through the spring market, extending low borrowing rates.