Mortgage Rate Forecast (March 2019)

The March issue of Mortgage Rate Forecast is now available on BCREA Online.

Highlights:

  • Mortgage rates falling to start 2019
  • Temporary slowdown in the Canadian economy or something more serious?
  • How high? Mortgage stress test and the neutral rate

Download (PDF, 734KB)

Canadian Monthly Real GDP Growth (January 2019) – March, 2019

Output in the the Canadian economy expanded 0.3 per cent in January, offsetting declines in the two previous months. The construction sector recorded positive growth for the first time in eight months, led by a 3.1 per cent increase in residential construction. The GDP of offices of real estate agents and brokers increased 4.1 per cent in January following four months of decline.

We expect the Canadian economy will expand just 1.5 per cent in 2019 as it struggles to rotate from consumption and residential investment led growth to an expansion driven by export and business investment. The latter will be a particularly difficult shift as the Alberta energy sector continues to face significant challenges. That means little chance of further rate tightening by the Bank of Canada in 2019 and therefore sustained lower mortgage rates this year.

For more information, please contact: Gino Pezzani.

Canadian Retail Sales and Inflation – March, 2019

Canadian retail sales declined for a third straight month, falling 0.3 per cent in January. Sales were lower in only 4 of 11 subsectors, with lower sales of motor vehicles and parts contributing to the majority of the decline. Excluding that sector, retail sales were 0.1 per cent higher. In BC retail sales were up 1.5 per cent on a monthly basis in January but were just 2.6 per cent higher year-over-year. In contrast to the national trend, sales of motor vehicles and parts were the largest contributor to gains in BC.

Canadian inflation, as measured by the Consumer Price Index (CPI), registered 1.5 per cent in the twelve months to February, a slight uptick from 1.4 per cent in January. The Bank of Canada’s three measures of trend inflation were essentially unchanged, averaging just over 1.8 per cent. In BC, provincial consumer price inflation was 2.2 per cent in the 12 months to February.

With inflation well in-check and meager retail spending growth providing further evidence of a slow first quarter, we expect that the Bank of Canada will remain sidelined for most, if not all of 2019. As a result, lower mortgage rates should prevail in 2019, providing a much needed boost to home sales.

For more information, please contact: Gino Pezzani.

BCREA Pleased With Housing Focus in Federal Budget 2019

Vancouver, BC – March, 2019. The British Columbia Real Estate Association (BCREA) is pleased with the measures announced in Budget 2019 that will help address housing affordability in British Columbia. REALTORS® in BC recognize that home ownership is a difficult goal to achieve for many British Columbians, and the policies announced in this budget provide meaningful assistance with this complex challenge.

BCREA supports the newly announced First-Time Home Buyer Incentive program, which introduces shared equity mortgages that will help to directly foster affordability. The budget also proposes increasing the Home Buyers’ Plan (HBP) withdrawal limit from $25,000 to $35,000, further supporting first-time buyers.

“British Columbians who aspire to home ownership need to be able to achieve this goal to assure a sustainable future for our province,” says Darlene Hyde, BCREA CEO. “REALTORS® have advocated for modernization of the HBP for a long time and we’re pleased to see it addressed in Budget 2019.”

The BC real estate sector makes important direct contributions to economic growth in the province, ultimately accounting for close to ten per cent of real GDP in the province through new home construction and residential and commercial real estate transactions. Home sales also generate significant spin-off expenditures. According to a 2017 study from the Canadian Real Estate Association (CREA), each home sale on the Multiple Listing Service® (MLS®) in BC between 2014 and 2016 generated $67,800 in related expenditures, such as moving costs, renovations and legal fees following the sale. Each transaction also generated an average of $7,000 in Property Transfer Tax.

BCREA also welcomes the following measures announced in Budget 2019:

  • making the National Housing Strategy a permanent program,
  • the announcement of an additional $10 billion and an extension of the Rental Construction Financing Initiative until 2027-28—a strong policy direction that will assist with assuring market sustainability,
  • increased sharing of financial data among federal and provincial governments and their agencies as part of anti-money laundering/anti-terrorist financing efforts; this issue can be best addressed with close collaboration among the federal and provincial governments, along with industry,
  • the announcement of an Expert Panel on Housing Supply and Affordability. These are significant issues in British Columbia, and a well-chosen panel can bring collective expertise and forward-thinking strategy to the issue. In the near future, BCREA will provide the federal and provincial governments with recommendations for strong potential appointees.

While we welcome the incentives for first-time home buyers, the announced measures fail to address the damage done by the mortgage stress test. BCREA is particularly encouraged that the federal government is carefully monitoring the effects of the B-20 mortgage regulations, as we recently voiced concern regarding the overreaching impact this policy is having in the Lower Mainland. We assert the federal government needs to review the policy against interest rate changes since its introduction and re-institute 30-year mortgages to further help Canadians achieve their goals of homeownership.

For more information, please contact: Gino Pezzani.

B-20 Stress Test Needs Revision to Improve Housing Affordability

Vancouver, BC – March, 2019. The British Columbia Real Estate Association (BCREA) is calling on the federal government to revisit the B-20 stress test so that more BC families can achieve their dream of homeownership. Mortgage lending rules, known as the B-20 stress test, have eroded housing affordability by reducing the purchasing power of families by as much as 20 per cent. Introduced last year, the stress test forces even the most credit-worthy borrowers with large down payments to qualify at an interest rate that is two percentage points above the rate they negotiate with their bank.

“We would like to see a review and reconsideration of the current mortgage underwriting ‘stress test,’ as well as a return to 30-year amortizations for federally insured mortgages,” says BCREA chief executive officer Darlene Hyde. “These rules must be changed now before BC families are left further behind.”

The stress test has caused a sharp decline in the attainability of homeownership in Canada. Since its implementation, home sales have declined 18 per cent across the country. Canada’s largest urban centres, where lack of affordability was especially acute before the new rules came into effect, have been hardest hit.

Home sales have declined nearly 25 per cent in Toronto and more than 45 per cent in Vancouver over the same period.

“The B-20 stress test is also having a negative impact on homeowner equity, family spending and the housing stock itself,” adds Hyde. “There’s a knock-on effect to the overall economy as families who are worried about declining home equity cut back on retail spending, home renovations and other products and services.”

A sharp decline in housing demand also causes home builders to pull back on production, arguably when it’s needed most, leading to slower growth of the housing stock and yet another supply crunch coupled with upward pressure on home prices down the road. Accordingly, the Canadian Home Builders’ Association has expressed similar concerns regarding the B-20 stress test, and the Canadian Real Estate Association and Toronto Real Estate Board have recently made similar appeals.

When families are locked out of the housing market by the strictest of mortgage rules, even the BC government treasury is affected. The sharp decline in home sales caused by the B-20 stress test has cost the government $400 million in lost Property Transfer Tax revenues alone, money that could have been used for health care, education and affordable housing.