Predictions for Canadian Mortgages in 2020

Jeff Mark
Predictions for Canadian Mortgages in 2020
Predictions for Canadian Mortgages in 2020

2018 was a tumultuous year for the Canadian housing marketing. 2019 saw a sizeable rebound, and the predictions for 2020 seem to be on the same track. Both the Canada Mortgage and Housing Corporation (CMHC) and the Canadian Real Estate Association (CREA) report a promising outlook for sales. However, according to the CREA, housing inventory will lag behind demand, causing an increase in price in many parts of the country.

The Health of the Housing Resale Market

Several economic factors influence housing activity, and these are predicted to remain strong throughout 2020 for many areas of the country. Population and employment growth continue to support the national resale housing market, and consumer confidence is increasing because of low unemployment rates in most areas, excluding Newfoundland and Labrador, Alberta, and Saskatchewan. Additionally, there seems to be no expectation that the Bank of Canada will raise interest rates in 2020.

Primary Forecasts for 2020

With the exception of the Prairies and Newfoundland, the number of homes available is at a 15-year low. These provinces represent 80% of housing activity in Canada, with the other 20% taking place in the oil-producing provinces. This significant decrease in activity will continue to support home price growth and have a notable impact on the Canadian housing market.

House Prices

The national average house price for 2020 is expected to be around $531,000, which is a 6.2% increase over the previous year. Across Canada, the price trends in 2020 will be similar to those in 2019, except for minor price declines in Newfoundland and Labrador, Saskatchewan, and Alberta. British Columbia saw a moderate price decline in 2019 but is expected to rebound this year.

Home Sales

Home sales are predicted to grow by 8.9% to 530,000 units according to the Canadian Real Estate Association. This is mainly because of 2019’s shaky start with home sales. However, the trends in 2020 will still be significantly higher than in previous years, with over 40,000 home sales not attributable to the lag in 2019. British Columbia and Ontario are expected to contribute another 15,000 transactions, while Quebec is expected to contribute another 8,000, and Alberta is expected to contribute another 2,000.

According to the Canadian Mortgage and Housing Corporation, housing activity will recover in 2020 as a result of improving demographics and economic conditions. As reported in CMHC’s Housing Market Outlook, the exaggerated value of homes in Toronto and Vancouver will continue to ease as the area’s market aligns more closely with real estate fundamentals.

Real Estate Firm Forecasts for 2020 and Beyond

Real estate firms such as RE/MAX have predicted significant house price appreciation, with growth forecasts as high as 3.2%. RE/MAX reports that these gains result from consumer confidence, with the primary drivers being older millennials entering their peak earning years and Canadians’ adjustment to the mortgage stress test.

2019’s market was full of highs and lows, particularly in Vancouver in Toronto. These peaks and valleys are predicted to normalize this year, as buyer demand fuels a positive outlook for Canadian real estate. A large number of people that put off home purchasing due to the mortgage stress test are returning to the housing market, which is increasing competition and demand.

The condominium segment of the housing market has seen high price appreciation over the last few years. This is likely a reflection of buying trends among millennials, who are now increasing their demand for houses over condos. This shift is expected to bring suburban sales activity back to life in 2020.

MLS Sales

Multiple Listing Services (MLS) sales remained at a steady number between 2018 and 2019. However, they are expected to reach between 480,600 and 497,700 by the end of 2020, a moderate increase over their recent levels but below their 2016 peak. MLS home sales are predicted to rise throughout 2021, offsetting the declines observed after the 2016 peak, and showing an increase in household disposable income and rate of household formation.

MLS Price

2017 saw a peak in Multiple Listing Services home prices, followed by a two-year decline. However, the MLS price in 2020 is expected to be between $506,200 and $531,000 by the end of the year, ultimately rising above its 2017 high. This positive growth is expected to continue its momentum through 2021, possibly reaching as high as $569,000.

Housing Starts

Housing starts are expected to increase moderately in 2020, driven by a shift in real estate fundamentals. Over the next two years, the number of new constructions is predicted to stabilize from their decline in 2018 and 2019, reaching between 194,000 and 204,300 in 2020 and as high as 206,300 by the end of 2021.

The number of new construction single detached homes is predicted to be between 60,400 and 63,000, while the number of new construction multi-unit homes is expected to be between 133,500 and 141,400. The stabilizing of the home starts market signals a moderately paced realignment with the historical average number of home starts each year, but remains well below the recent peak of new construction single-detached homes in 2017 and multi-unit starts in 2018.

Interest Rate Forecasts for 2020

The Bank of Canada avoided making any changes to the interest rates in 2019, but that is expected to come to an end in 2020. It is predicted that the Bank of Canada is going to make a heavily anticipated rate cut of .25% this year.

In 2019, the Bank of Canada’s overnight bank funding rate stayed at 1.75%, mostly because of Canada’s strong economy, despite pressure from global trends. Even though 40 central banks worldwide have cut their interest rates in recent months, the Bank of Canada is predicted to remain unchanged throughout the first quarter of 2020. There is a 30% chance for a rate cut in the second quarter of 2020, but housing strength and fiscal stimulus will probably keep the bank from making a change.