Canada's Real Estate Outlook 2019

Review of 2018 real estate market trends going into 2019

This time last year we made a prediction about 8 real estate trends that would occur in 2018. If you're keeping track: We passed. See what we got right (and where we missed the mark)
How accurate were our 2018 real estate market predictions? We tell you

So, let’s just say upfront that we did get one thing right. Last year, we clearly stated that any prediction for the year, when it came to real estate, would be made under the sound knowledge that it would be partly incorrect, at best. Now that 2019 is here, we’re looking in retrospective for our 2018 housing market predictions and real estate market trends.

Here are the eight real estate market trends we predicted for 2018 in Canada, and what actually happened.

✔ Trend #1: Expect prices to regress to the mean

Crash. Soft landing. Correction. Recession. All words that were used quite frequently in relation to Canada’s property markets in 2018. While bear and bull analysts are still debating on what’s really happening, what did come true in 2018 was that housing prices across Canada did, in fact, go through a correction. But, as predicted, prices across Canada, on average, continued to grow, albeit at an anaemic rate. It was a prediction of “retrenchment” according to Moody’s Analytics.

According to statistics from the Canadian Real Estate Association, the MLS Home Price Index (HPI) was up 2.3% year-over-year (y-o-y) by the end of October 2018, while the national average sale price slipped by 1.5% y-o-y by the end of October 2018.

Now, when we rewind to CREA’s predictions from last year, we can see that analysts were pretty spot on. Last year, CREA predicted a national average price reduction of 1.4% in 2018.

Checkmark on this prediction.

✔ Trend #2: Death of the single-family home

For almost a decade buyers and investors did all they could to get the most for their money and, quite often, that meant the purchase of a single-family detached home (also known as SFH). The result was an astronomical price climb for the SFH, particularly in hot markets, such as the Lower Mainland, B.C. and the Greater Toronto Area.

Property-type-historical-prices-Toronto-Zolo-2019-outlook

But even as prices peaked in 2016, we began to see fatigue. Buyers started to shift attention towards multi-family units and builders scrambled for land and permits so they could be first to market to meet this demand.

As a result, the single-family home really took a beating in 2018. In Greater Vancouver, detached home sales ground to a halt starting in January 2018. Sure, sales activity inched up 3.4%, but this activity was 47% below the 10-year average for the month of January. This trend wasn’t isolated to Vancouver but was seen and felt across Canada — and it didn’t stop as the year progressed. 

The same was true for homes in the Greater Toronto Area.

What was particularly notable was that larger developers and builders stopped focusing on the single-family home and started to really emphasis land and permit applications for multi-family units.

As predicted by the Canada Mortgage and Housing Corporation in late 2017, housing starts for single-family homes also started to decline in mid-2018.

Housing starts for single family homes in 2018
Statistics Canada

Turns out land constraints and labour constraints, particularly in high-value markets like Vancouver and Toronto, are helping to signal the current demise of the single-family detached home. “Low-density sites are getting more and more expensive,” explains Dana Senagama, CMHC’s principal market analyst. “Developers are focused on building high-density housing.”

Checkmark on this prediction.

✔ Trend #3: The year of the condo

Just because demand and supply are decreasing for single-family homes doesn’t mean most Canadians have given up on their dream of becoming a homeowner. Yes, there were more cranes in the sky in 2017, but 2018 was still good for condo development.

So, a big checkmark on this prediction.

✖ Trend #4: Data is the new currency

Last year the stories that dominated headlines all dealt with speculative assumptions about who, how and what was impacting Canadian housing prices. As a result, we assumed there would be a better effort by all policymakers to track data. In that way, we predicted some sort of measure to track real estate speculation as well as a nationwide push to standardize square footage reporting and collect density data (two data sets that will inform zoning and planning decisions). But the push for this type of data just didn’t come.

“The dominant explanation for the crisis in Vancouver is a large and continuous flow of foreign money into the region, especially from China, which has reached unprecedented levels in the past year. This factor accounts for most of the crisis, on its own,” wrote Josh Gordon, assistant professor at Simon Fraser University, in a report released in May 2018.

Instead, it appears that policymakers actually took note of what Simon Fraser University economist, Josh Gorden said. Back in 2017, he stated that it wasn’t always necessary to know how much of an impact a certain factor was having on a market; the key was to know whether or not we wanted to do something about the impact.

Without any definitive data, the newly elected B.C. minority government made a number of changes during its 2018 spring budget. As a result, we now have a more expensive Foreign Buyer’s tax in B.C.’s Lower Mainland (and on parts of Vancouver Island) which increased from 15% to 20% in 2018. The B.C. government also decided that those with means should also fork out a bit more. There was an increase in the property tax paid for those buying homes valued at $3 million or more in B.C. (from 3% to 5%). There was also an increase in the school portion of a homeowner’s property tax bill for homes valued at $3 million or more. Finally, anyone who owned property in the major centres within B.C. but didn’t pay provincial income-tax had to pay 0.5% of the assessed value of a home in 2018, as a non-residence tax. Starting in 2019, this non-residency tax will increase to 2% of the home’s assessed value.

Following suit, Ontario also introduced a 15% Foreign Buyer’s tax (known as the Non-Residence Tax). In the month after the tax was introduced, the Ontario government released data showing 4.7% of transactions in the Greater Golden Horseshoe involved non-residents. Between August and November, the presence of foreign buyers dropped to 1.9%.

What does this mean? It meant that our prediction that data would dominate the resources of government was inaccurate. While all levels of government are still pursuing data collection — as outlined in initiatives announced in 2016 — this last year wasn’t about how to collect more and better data. It was about how to implement policies that would have an impact now.

So, we get a big X against this prediction.

✖ Trend #5: Tech-disrupters will have their day

We really thought that 2018 would be the break-out year for real estate data in Canada — equivalent to 2008 in the U.S. when Zillow (and Trulia) won their court battle to have the Multiple Listing Service data opened up for public consumption.

Sure, the Competition Bureau was finally and irrevocably awarded a win when the ruling against the country’s largest real estate board, TREB, was upheld. Theoretically, it meant that sold data and other finer points of real estate data were now openly available to the public. In practice, it simply meant that home shoppers could find out how much a property recently sold for without having to pick up the phone or send an email to an agent. That’s about it. But it’s a step. While nothing transformative occurred in 2018, it was a year where those committed to making real estate a more transparent transaction got to rejoice…just a little. Then it was back to the drawing board (or should we say computer terminal) to hammer out how and why to use this data.

On a sad note, last year also saw the demise of tech-disrupter TheRedPin, an independent real estate brokerage much like Zolo and Zoocasa. In June 2018, the company shuttered its doors after declaring bankruptcy. While there’s still a lot of speculation as to what actually happened, the big takeaway is that tech-disrupters must continue to be lean and nimble if they want to compete in a relatively staid and stable industry, like real estate.

So, we get a big X against this prediction.

✖ Trend #6: Rollercoaster mortgage ride

What Can You Afford - 20% down payment - Zolo Realty copy
Jenn Gerlach / Source: CMHC, Zolo
Notes: Maximum house price includes the total mortgage plus the 20% down payment.

Almost a decade of historically low interest rates meant that the first rate hike by the Bank of Canada in 2017 came as a bit of a shock.

There were more rate increases in 2017 — three to be exact. But our prediction wasn’t whether or not rates would rise (that was too easy). Our prediction was that rates would experience a bit of volatility over the course of the year — falling in the spring and fall and rising towards the end of the year.

Did this happen? No.

Rates were pretty staid and steadily increased throughout the year. We started 2018 with a posted rate hike of 15-basis-points, from 4.99 to 5.14%. Keep in mind this was the posted rate, so most lenders were still offering 200 basis points of the posted rate (although, borrowers would have to qualify for the loan based on the posted rate). By December 2018, posted rates had climbed to 5.34% — not a huge hike, but it certainly didn’t bring about the volatility that we’d predicted.

So, we get a big X against this prediction.

✔ Trend #7: Return of 30-year mortgages

frustrated young business man working on desktop computer at mo

We all knew the new mortgage stress test, which took effect on January 1, 2018, would really impact buyer affordability. As a result, many analysts assumed that buyers would find creative ways to afford a home. One of these strategies was to use longer amortization periods for the loan — increasing the length of time to pay off the full loan from 25 years to 30 years.

While many thought that 30-year mortgages had disappeared, they didn’t. As long as a buyer had more than 20% as a down payment, any amortization length above 25 years and up to 30 years was possible. But opt for a low-ratio mortgage (any mortgage with more than 20% down) and increase your amortization above 25 years and you’d also have to pay CMHC fees (as high as $10,000 or $20,000). The idea is the additional fee may be worth it if it meant avoiding a budget-busting monthly mortgage payment or being denied the loan outright.

Turns out this prediction was true. In 2018, over 60% of low-ratio mortgages — loans with 20% or more as a down payment — were with extended amortization periods. That’s pretty significant.

A year ago, Mark Aldridge, President and CEO of MCAP, explained during a Mortgage Professionals Canada’s annual conference that the reason for the rise in 30-year mortgages was that the new mortgage stress test didn’t just impact new buyers, but those renewing their mortgages. The current homeowners may find that they are unable to re-qualify based on the new mortgage stress-test and, as a result, opt for alternative solutions to keep monthly payments manageable.

Checkmark on this prediction.

✔ Trend #8: Mobility is key

Construction Cranes At Twin Highrise Condo Construction Site

Yes, location is still king when it comes to real estate, but the idea that mobility would play a big role in the 2018 real estate market was that investors would move to find the strategic buys and developers would find and build in under-utilized areas.

Truer words were never spoken.

At the start of the year, we watched as real estate sprees travelled across the country, moving from B.C. — when higher foreign buyer taxes and new land transfer and non-resident income taxes were introduced — to the Greater Toronto Area. Once the Ontario government introduced its housing affordability plan the buying frenzy moved to Montreal, Quebec.

The rationale was that cheap capital no longer offered the advantage. Instead, the ability to move quickly and to leverage strategic partners was the key to getting into the Canadian real estate market in 2018. As a result, developers didn’t shut down shop as soon as the markets started to cool in 2018. Instead, developers and builders began to pace themselves — cutting back on the break-neck speed that has dictated activity for the last half-decade.

We know this is true because of housing starts. If the markets truly were crashing, developers would be the first to get out and seek different sources of income. But they didn’t. While multi-family developments are certainly outpacing single-family home developments, both are still going on across Canada and particularly in areas where investment in infrastructure and transit is taking place.

So a big ol’ checkmark for this prediction.

End result?

So, how did we do? Out of eight predictions, we got five right. We consider 63% better than a passing grade so we broke out the bubbly (water, that is). Now, it’s on to 2019 to see what it has in store for all of us housing junkies.

Romana King
Romana King

Romana is an award-winning personal finance writer with an expertise in real estate. She is obsessed with the property marketplace and is the current Director of Content at Zolo.