If that wasn\u2019t enough, the Federal Government really hammered a nail into the real estate bubble coffin by announcing the new mortgage stress test, which would close all loopholes and require every new borrower, or anyone renewing or refinancing with a new lender, to qualify for posted mortgage rates, rather than discounted rates. This change, which came into effect on Jan. 1, 2018, effectively cut the maximum amount a person could borrow by as much as 25%.<\/p>\n\n\n\n
The question, then, is whether or not Canada\u2019s housing market will crash in 2018? Here\u2019s what the banks have to say about Canada\u2019s housing market crash:<\/p>\n\n\n\n
National Bank:
Moderate Price Corrections in 2018<\/h2>\n\n\n\n
<\/p>\n\n\n\n
![\"Canada's](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/12\/National-Bank-building-logo.jpg\"){kind=logo}
<\/figure><\/div>\n\n\n\nThere will be two main factors that will dictate how Canada\u2019s real estate markets will do in 2018, explains Marc Pinsonneault, senior economist at the National Bank. Not surprisingly, these two factors are the new mortgage stress test (known as B20) and the anticipated increase in interest rates.<\/p>\n\n\n\n
\u201cAs a result, we think sales will dip lower in 2018, by about 10%,\u201d says Pinsonneault, \u201cand this will translate into a drop in prices, particularly in major urban centres, like Toronto<\/a> and Vancouver.\u201d<\/p>\n\n\n\n Overall, Pinsonneault and his team expect a 2.8% drop in prices for residential real estate in Canada, with a more pronounced impact in Toronto and Vancouver, where they expect a 5% dip in prices for 2018.<\/p>\n\n\n\n \u201cA 2% to 5% drop in prices is very moderate, so we don\u2019t expect disasters,\u201d says Pinsonneault. As such, the National Bank predicts a balanced market for Canada\u2019s housing market in 2018, with only moderate price corrections.<\/p>\n\n\n\n Last year was a busy one for analysts involved with tracking and monitoring Canada\u2019s real estate market trends. The year started sluggishly in the west, as the Greater Vancouver Area<\/a> slowly shrugged off the impact its new foreign buyers\u2019 tax (introduced in August 2016). Finally, after additional regulatory changes in Ontario and a couple of minor interest rate hikes by the Bank of Canada, the year ended with a flurry of activity. Still, none of this was surprising to the team of economists at RBC when predicting Canada\u2019s housing market crash.<\/p>\n\n\n\n In the December Econoscope<\/a>, RBC\u2019s Chief Economist Craig Wright states: \u201cThe drivers of Canada\u2019s economy are set to shift in 2018.\u201d Wright and his colleagues predict a slowdown in the nation\u2019s housing activity, but \u201cthe risk of a full-blown housing market crash occurring in 2018 is low in our opinion.\u201d<\/p>\n\n\n\n Wright states, that the majority of housing markets in Canada are in balanced territory, \u201cand expect to remain so in 2018.\u201d<\/p>\n\n\n\n After years of relying on heavy consumer spending and robust housing activity to help grow the economy, Canada is finally starting to rely on other economic factors, including labour market growth, government infrastructure spending, solid global trade prospects as well as growing business investment in 2018.<\/p>\n\n\n\n These fundamental changes combined with a moderating real estate market prompted RBC Senior Economist, Robert Hogue, to state that the overall Canadian real estate market is in a relatively strong position going into 2018. \u201cWe see limited downside risks to prices in the near term in Canada because the majority of markets\u2014including Toronto\u2014are in balance,\u201d he explains.<\/p>\n\n\n\n But this optimism doesn\u2019t mean there won\u2019t be further moderations to the overall market. RBC analysts expect market activity to be more volatile than usual as buyers and sellers strategize over the impact of the new mortgage rules. \u201cWhen the dust settles, which could be as late as the spring, we believe that the combination of tighter mortgage rules<\/a>, rising interest rates and poor affordability in several key markets will weigh on homebuyer demand in Canada,\u201d states Hogue in his December economic analysis.<\/p>\n\n\n\n As a result, RBC analysts predict that home resale activity will decline by 4.2% in 2018. This follows a 4.8% drop in 2017. (The final results for 2017 won\u2019t be released until the first or second week of January, so this is a forecasted drop that could change based on final numbers.)<\/p>\n\n\n\n How will these predicted resale activity dips impact home prices? It will mean price acceleration will grind to a halt from a double-digit rise in 2017\u2014when prices accelerated by 11.1%, on average, across Canada\u2014to a more normal appreciation of 2.2% in 2018, nationwide.<\/p>\n\n\n\n Economists at BMO are expecting a significantly slower real estate market in 2018, primarily because of fall-out from a slew of new regulatory policies introduced in 2016 and 2017, combined with the threat of rising interest rates.<\/p>\n\n\n\n Yet, despite all the downward pressure on potential buying activity, economists at BMO, along with analysts from all big banks, are predicting housing prices to grow marginally in most provinces in 2018.<\/p>\n\n\n\n \u201cThe adjustment in the Toronto market is ongoing,\u201d stated BMO Capital Markets economist Robert Kavcic in his December econoFACTS report, \u201cbut strong underlying supply-demand fundamentals should prove supportive next year, once the remaining forth gets worked off.\u201d<\/p>\n\n\n\n Kavcic is confident that the \u201cfroth\u201d of Toronto\u2019s market\u2014that saw prices jump to new historical highs in 2017\u2014won\u2019t return in 2018, primarily because of anticipated interest rate hikes and the prolonged impact of OSFI\u2019s new mortgage stress test.<\/p>\n\n\n\n \u201cTo put it in perspective, we are now looking for a 7% to 10% drop in housing starts next year,\u201d states Kavcic. He adds there will be a 1% to 5% reduction in the number of existing sales, which will create a slowdown in sale prices meaning prices will either flatline or increase by more historically normal increments (between 0% and 4%)\u2014compare this to the 14% nationwide price index increase in 2017.<\/p>\n\n\n\n Adrienne Warren, senior economist with Scotiabank, is confident that national price trends will remain positive going into 2018, although, with more than half of local real estate markets in balanced territory, she describes this year\u2019s housing market as \u201csubdued.\u201d<\/p>\n\n\n\n Warren attributes the overall moderation in Canada\u2019s housing market crash to a combination of tighter mortgage qualifying rules (B20) and the incremental increases in interest rates. However, she points out that \u201cHigh-priced markets, including Vancouver and Toronto, with strained affordability and a large share of uninsured mortgages, may have more downside risk.\u201d<\/p>\n\n\n\n But these big urban centres have \u201cstrong demand fundamentals, including low unemployment, strengthening wage gains, and ageing millennials,\u201d which will prevent an outright collapse in their increasingly-strained housing markets. However, potentially the most significant force in Canada\u2019s housing market, according to Warren, is immigration. \u201cThe majority of immigrants to Canada settle in the largest [cities].\u201d Of the 1.2 million immigrants that came to Canada between 2011 and 2016, 56% lived in the three largest urban centres: Toronto, Montreal and Vancouver.<\/p>\n\n\n\n \u201cThese cities are expected to continue to attract the largest number of new immigrants for the foreseeable future,\u201d writes<\/a> Warren. She adds, \u201cimmigration has been a significant contributor to the strength and duration of Canada\u2019s almost two-decade-long housing cycle upswing.\u201d<\/p>\n\n\n\n A couple of years ago, TD Bank economists promised a soft-landing for Canada\u2019s housing market<\/a>. Their predictions came at a time when many international reports were announcing potential doomsday scenarios for the nation\u2019s real estate markets. Almost five years later, those same economists are on the verge of vindication.<\/p>\n\n\n\n According<\/a> to Michael Dolega, Director and senior economist at TD, Canadians got a \u201cgood dose of news\u201d when the sales activity numbers came in at the end of 2017. Dolega and his colleague, Rishi Sondhi, write: \u201cOverall, we anticipate a continuation of the soft-landing narrative that has so far characterized dynamics in Canada’s housing market.\u201d<\/p>\n\n\n\n While Dolega and Sondhi concede that higher mortgage rates will certainly dampen real estate activity in 2018, they are confident that current employment expectations and income growth will \u201ccushion the blow.\u201d<\/p>\n\n\n\n Finally, the economists at CIBC had a lot to say about Canada\u2019s housing market. What was particularly interesting was CIBC Senior Economist, Avery Shenfeld’s position on fears regarding consumer debt.<\/p>\n\n\n\n Bank of Canada Governor, Stephen Poloz, has repeatedly warned consumers about the potentially damaging impact of high household debt. The fear is that a large correction in the housing market or a moderate increase in interest rates could prompt significant numbers of defaults, which could harm the country\u2019s overall economy.<\/p>\n\n\n\n CIBC Senior Economist, Avery Shenfeld, concedes that Poloz\u2019s fear is real. Still, Shenfeld is confident that even if defaults in Canada spike, the impact will be nothing close to the subprime mortgage crisis that sparked America\u2019s 2008 financial crisis. \u201cThat burden is much better distributed [in Canada] than was the case in [America],\u201d states Shenfeld in his December CIBC Economics report<\/a>. \u201cThe data shows that the bulk of the mortgages are either insured or well backed by home equity and that Canadians are having no difficulty meeting their monthly payments at current levels for interest rates and employment.\u201d<\/p>\n\n\n\nRBC:
A Return of the Historical Price Increases<\/h2>\n\n\n\n![\"Canada's](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/12\/Craig-Wright-RBC-chief-economist.jpg\")
BMO:
It Will Be a Tame Year for Canada\u2019s Real Estate Markets<\/h2>\n\n\n\n![\"Canada's](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/12\/BMO-capital-markets-logo.jpg\"){kind=logo}
<\/figure><\/div>\n\n\n\nScotiabank:
Immigration Will Help Ease Larger Markets<\/h2>\n\n\n\n![\"Adrienne](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/12\/Adrienne-Warren-senior-economist-Scotiabank-BNN.jpg\")
TD Bank:
Soft-Landing (And Some Vindication)\u2026Finally<\/h2>\n\n\n\n![\"Canada's](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/12\/Michael-Dolega-TD-Bank.jpg\")
CIBC:
Mortgage Resets in 2018 Won\u2019t Trigger a Sub-Prime Collapse<\/h2>\n\n\n\n![\"Canada's](\"https:\/\/www.zolo.ca\/blog\/wp-content\/uploads\/2017\/12\/Avery-Shenfeld-CIBC-senior-economist.jpeg\")