Quebec: We have revised our home resale and price forecasts modestly higher this year to reflect recent stronger-than-an
CANADIAN HOUSING MARKET FORECAST July 2017
2017 mid-year update Our overall thesis for Canada’s national housing market is little changed from our previous forecast in March: we continue to expect a ‘soft landing’ scenario. However, we’ve made a few notable changes at the provincial level. We reduced our resale forecast for Ontario in light of significant provincial government policy changes. On the other hand, we boosted our forecast for the BC market to reflect a quicker-than-expected rebound from the earlier policy-induced cooling.
National perspective: soft landing still our base case We continue to expect a soft landing in Canada driven by policy changes, poor affordability in some markets and rising interest rates. Our view is that this will translate into a modest decline in home resales and moderation in the rate of price increases. Because activity and prices have been stronger than expected in the first quarter of 2017, our updated forecast shows slightly less of a decline in home resales and a faster rate of price increases in Canada in 2017 compared to our previous forecast. Nonetheless, we expect recent policy intervention in Ontario to weigh on activity in the near term and some interest rate headwinds to emerge in the latter part of 2017. We brought forward our call for the launch of the Bank of Canada’s rate normalization cycle from the first half of 2018 to mid-2017. This latter factor will contribute to accelerate the market’s cooling in 2018. Home resales: Canada
Home prices in Canada
Thousands of units
Annual % change, composite
Forecast:
600 535
500
Forecast:
12
10-year average
503
516 488
477
9.6
10
7.8
8
400
6
5.1
300 4 200
2
100
1.2
0 -2
0 01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Source: Canadian Real Estate Association, RBC Economics Research
16
17
18
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Brookfield RPS, Royal LePage, CREA, RBC Economics Research
Main changes affecting our forecast since the previous update in March 2017 □
Our updated forecast assumes a stronger economic backdrop: GDP growth was boosted and the unemployment rate profile was lowered.
□
We now expect the interest rate hiking cycle to begin earlier (in mid-2017) rather than in the first half of 2018. Yet the cumulative rate increase by the end of 2018 was boosted by only 25 basis points.
□
Our updated forecast takes into account stronger-than-expected resale activity and prices in Q1 of this year.
□
It also takes into account new policy measures announced in Ontario on April 20, 2017.
Robert Hogue Senior Economist | 416-974-6192 |
[email protected]
CANADIAN HOUSING MARKET FORECAST UPDATE | JULY 2017
Provincial markets: policy action in Ontario takes centre stage The most significant developments since March have taken place in Ontario where intense overheating in the first quarter prompted a major policy response by the provincial government in April. For the most part, these developments were not anticipated by our previous forecast and have led us to alter the profile for Ontario home resales and prices this year and next. Our view is that the introduction of Ontario’s Fair Housing Plan will be a turning point for the provincial market. We expect the sharp drop in home resales that occurred since the Plan’s announcement in April to be largely sustained, even though we believe that the effect of the Plan itself will be temporary (perhaps up to six or nine months). Rising interest rates and stretched affordability will become increasingly restraining forces once the market has adjusted to the policy changes. We project moderate—but healthy—declines in Ontario home resales in both 2017 and 2018.
Forecast assumptions %, unless specified otherwise 2016
2017f
2018f
BoC overnight rate (year-end)
0.50
1.00
1.50
5-year bond yield (year-end)
1.15
1.75
2.45
Population growth (y/y)
1.2
1.2
1.3
Oil prices (WTI, avg. US$/bbl)
43
55
60
Canada
7.0
6.6
6.3
British Columbia
6.0
5.7
5.9
Alberta
8.1
7.9
6.9
Saskatchewan
6.4
6.2
5.8
Manitoba
6.1
5.6
5.6
Ontario
6.6
6.1
5.8
Quebec
7.0
6.4
6.2
Atlantic
10.0
9.9
10.2
Unemployment rate
We have boosted our projected annual price increases in Ontario from 9.3% to 14.0% in 2017 to reflect the spike that took place earlier this year. We project that part of this spike will be reversed in the coming months, thereby setting prices on a much more moderately rising trend next year. We also made notable changes to our calls for British Columbia in light of the quicker-than-expected rebound in activity and prices this spring following a period of policy-induced cooling. We have tempered our projected decline in annual resales, and boosted the price profile resulting in a small annual gain in 2017. But we still expect poor affordability and rising interest rates to weigh on the market in 2018, keeping resales on a downward track and containing the pace of price increases to low single-digits. Our views have not changed much for markets in the rest of Canada. We made generally small (and mostly upside) revisions to our forecasts, with minimal impact for the national figures. Alberta: The gradual market recovery is on track. We expect increasing resales to keep demand and supply in balance, and prices to rise very modestly in both 2017 and 2018. Saskatchewan: We still project housing market activity to firm up alongside a recovering provincial economy but the process has been delayed somewhat. Resales have been weaker than anticipated so far this year. We expect prices to be largely flat this year and next. Manitoba: Activity looks set to be sustained near last year’s record-high level. We expect the market to remain in balance and the rate of price increases in the low single-digits. Quebec: We have revised our home resale and price forecasts modestly higher this year to reflect recent stronger-than-anticipated momentum. The provincial economy and labour market have given increasing signs of vigour. Our 2018 forecast is little changed and continues show a modest decline in resales in the face of rising interest rates, and deceleration in the pace price increases. Atlantic Canada: We no longer expect home resales to weaken in 2017, except in Newfoundland where a significant decline is projected. A generalized softening in activity caused by rising interest rates remains our base case for 2018. We project prices to rise modestly for the most part in both years with a couple of exceptions. Our forecast shows a small decline in New Brunswick this year to reflect an unanticipated dip in prices that took place earlier this year. It also shows a drop in Newfoundland in 2018 when we expect demand-supply conditions to favour buyers heavily.
RBC ECONOMICS | RESEARCH
CANADIAN HOUSING MARKET FORECAST UPDATE | JULY 2017
Home resales forecast (units) 2009
2010
2011
2012
2013
2014
2015
2016
2017f
2018f
456,700 6.6
437,100 -4.3
455,800 4.3
450,900 -1.1
453,800 0.6
477,400 5.2
503,200 5.4
535,300 6.4
515,500 -3.7
488,400 -5.3
British Columbia
85,000 23.4
74,600 -12.2
76,700 2.8
67,600 -11.9
72,900 7.8
84,100 15.4
102,500 21.9
112,200 9.5
99,400 -11.4
91,600 -7.8
Alberta
57,700 2.7
49,900 -13.5
53,900 8.0
60,400 12.1
65,900 9.1
71,500 8.5
56,200 -21.4
52,000 -7.5
55,300 6.3
56,200 1.6
Saskatchewan
11,100 6.7
10,900 -1.8
13,100 20.2
13,800 5.3
13,500 -2.2
13,700 1.5
12,200 -10.9
11,600 -4.9
10,900 -6.0
11,200 2.8
Manitoba
13,100 -2.2
13,100 0.0
13,900 6.1
13,900 0.0
13,700 -1.4
13,800 0.7
14,000 1.4
14,600 4.3
14,700 0.7
14,400 -2.0
Ontario
187,500 5.5
185,800 -0.9
197,700 6.4
194,600 -1.6
195,000 0.2
202,500 3.8
221,700 9.5
242,700 9.5
228,900 -5.7
213,000 -6.9
Quebec
79,100 3.0
80,000 1.1
77,200 -3.5
77,400 0.3
71,200 -8.0
70,600 -0.8
74,100 5.0
78,200 5.5
82,300 5.2
79,200 -3.8
7,000 -7.9 9,900 -7.5 1,400 -6.7 4,500 -6.3
6,700 -4.3 10,000 1.0 1,500 7.1 4,300 -4.4
6,600 -1.5 10,300 3.0 1,500 0.0 4,500 4.7
6,400 -3.0 10,400 1.0 1,500 0.0 4,400 -2.2
6,300 -1.6 9,100 -12.5 1,400 -6.7 4,300 -2.3
6,300 0.0 8,900 -2.2 1,400 0.0 4,200 -2.3
6,700 6.3 9,200 3.4 1,700 21.4 4,200 0.0
7,400 10.4 9,900 7.6 2,000 17.6 4,100 -2.4
7,900 6.8 10,000 1.0 2,000 0.0 3,400 -17.1
7,600 -3.8 9,600 -4.0 1,900 -5.0 3,100 -8.8
Canada*
New Brunswick Nova Scotia Prince Edward Island Newfoundland & Labrador * Includes sales in the Territories. A nnual percent changes are in italics.
Source: Canadian Real Estate Association, RBC Economics Research
Home price forecast 2009
2010
2011
2012
2013
2014
2015
2016
2017f
2018f
Canada
Aggregate price
315,000 -0.7
337,400 7.1
353,000 4.6
364,200 3.2
373,600 2.6
390,900 4.6
410,700 5.1
450,200 9.6
485,200 7.8
490,800 1.2
British Columbia
478,600 -4.6
513,700 7.3
542,600 5.6
538,300 -0.8
538,200 0.0
573,900 6.6
619,000 7.9
730,200 18.0
747,200 2.3
758,500 1.5
Alberta
362,600 -5.7
374,200 3.2
379,500 1.4
388,100 2.3
402,100 3.6
422,400 5.0
428,600 1.5
422,700 -1.4
432,700 2.4
439,300 1.5
Saskatchewan
260,700 -1.7
278,200 6.7
286,500 3.0
305,300 6.6
319,800 4.7
324,400 1.4
322,400 -0.6
325,600 1.0
326,200 0.2
326,500 0.1
Manitoba
206,100 3.8
224,600 9.0
239,600 6.7
255,700 6.7
264,300 3.4
273,600 3.5
277,300 1.4
281,000 1.3
285,600 1.6
288,700 1.1
Ontario
314,000 0.5
340,900 8.6
357,300 4.8
375,300 5.0
388,900 3.6
409,100 5.2
438,500 7.2
495,300 13.0
564,400 14.0
570,200 1.0
Quebec
247,300 4.3
265,300 7.3
281,800 6.2
289,400 2.7
293,700 1.5
299,200 1.9
303,700 1.5
315,100 3.8
327,900 4.1
332,400 1.4
New Brunswick
168,100 1.1 197,800 2.0 177,700 5.3 211,900 14.7
174,200 3.6 205,900 4.1 182,300 2.6 232,600 9.8
179,700 3.2 212,800 3.4 186,200 2.1 243,300 4.6
183,100 1.9 221,200 3.9 185,300 -0.5 259,100 6.5
185,900 1.5 222,400 0.5 189,600 2.3 277,400 7.1
189,400 1.9 225,500 1.4 188,200 -0.7 284,500 2.6
188,900 -0.3 228,000 1.1 196,300 4.3 288,900 1.5
197,100 4.3 235,400 3.2 205,000 4.4 288,700 -0.1
195,200 -1.0 243,100 3.3 214,500 4.6 290,200 0.5
196,400 0.6 245,300 0.9 217,800 1.5 280,200 -3.4
Nova Scotia Prince Edward Island Newfoundland & Labrador A nnual percent changes are in italics.
Source: Brookfield RPS, Royal LePage, Statistics Canada, RBC Economics Research
The material contained in this report is the property of Royal Bank of Canada and may not be reproduced in any way, in whole or in part, without express authorization of the copyright holder in writing. The statements and statistics contained herein have been prepared by RBC Economics Research based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This publication is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities. ®Registered trademark of Royal Bank of Canada. ©Royal Bank of Canada.
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