Canadian house prices are expected to climb significantly in the second half of 2018, driven by price gains in the Toronto region as buyers adapt to new mortgage rules that cooled the market in the first half of the year.
A new forecast by Royal LePage predicts home prices will rise 4.5 per cent nationally by the fourth quarter of 2018 compared with the second quarter ended June 30, hitting a national aggregate price of $641,597 by the end of the year.
In the first half of the year, house prices rose just 2 per cent nationally on a year-over-year basis to $613,968, according to Royal LePage’s national house price composite of 63 major markets.
Royal LePage chief executive officer Phil Soper said the spring market “never blossomed” but he expects the second half of the year to be stronger as buyers adjust to the new mortgage stress-test rule that took effect Jan. 1.
The test requires buyers to prove they could still afford their mortgages even if interest rates were to rise significantly beyond the rate they negotiated with their banks.
Mr. Soper said he has never seen a federal housing policy change that had as wide an impact on buyers in all markets across the country.
“It really did impact people from coast to coast, in slow markets or nascent recovering markets like Alberta and Saskatchewan, and in overheated markets like Toronto,” he said.
However, he said buyers have begun to adjust to the new rules by shopping for a cheaper type of home, or looking to buy in less expensive neighbourhoods. Royal LePage expects an uptick in both the volume of sales and in home prices this year.
The firm predicts the Greater Toronto Area will have the biggest price increase in the second half of 2018 of any major city in Canada, with prices expected to climb 5.6 per cent to $867,826 by the fourth quarter compared with the second quarter this year.
The predicted increase would reverse a 1.9-per-cent decline in prices in the GTA in the second quarter compared with the same period last year, the company said.
Mr. Soper said his firm’s data are now showing an uptick in detached houses in the Toronto area for the first time since the stress-test rule took effect, which could mean the market has hit its bottom.
“It probably is the bottom, and that’s why the forecast points to higher prices during the next quarter,” he said.
Ottawa is expected to see prices rise 4.9 per cent in the second half of the year to an aggregate price of $460,938, while Royal LePage predicts prices will climb 3.6 per cent in the Greater Vancouver region to $1.32-million. Calgary and Edmonton are also expected to see prices rise in the second half of the year, with gains expected to hit 2.7 per cent and 3.6 per cent, respectively.
However, prices are expected to fall 0.9 per cent in Regina in the second half of the year, declining to an aggregate level of $321,743 by the fourth quarter.
Royal LePage said the second quarter of 2018 saw a sharp divergence between the slumping real estate market in the GTA and major price gains in a number of other cities in Ontario outside the GTA.
While prices fell almost 2 per cent in the GTA in the second quarter compared with the same period last year, they were up 11 per cent in the Niagara and St. Catharines region, 9 per cent in London, 8.2 per cent in Kitchener/Waterloo, 10 per cent in Kingston and 6 per cent in Hamilton.
Mr. Soper said many buyers who cannot afford a house in Toronto are moving away from the GTA to more affordable parts of the province, including young first-time buyers and older baby boomers who are cashing out and retiring to cheaper cities.