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How will the market play out for buyers, sellers and mortgage borrowers?
Let’s take a look at the forecasts for the year:
- 6% price growth on average predicted across the GTA
- Increased Buyer competition as List to Sale ratios fall in favor of a Sellers market
- Continued low mortgage rates and potential relief from stress test
Home sales are recovering from the stress test
The test requires insured mortgage borrowers to prove they could qualify for a mortgage at the Bank of Canada’s five-year benchmark rate – currently 5.19 per cent. Canada Mortgage and Housing Corp. reported the stress test dampened new mortgage lending to the slowest rate of growth in 25 years in 2018, at a pace not seen since the 2008 recession.
However, home buyers began to overcome these adverse effects in 2019; coupled with historically low mortgage rates, that led to a continued improvement in sales in the Greater Toronto and Vancouver areas, as well as a number of secondary markets.
The return of the Seller’s market – at least, in Toronto
While home sales in 2019 increased, the number of new supply decreased by -2.7% causing in some areas conditions for a Sellers market territory.This was particularly notable in the Greater Toronto Area, where concerns of a supply-and-demand gap have grown over the past year. In Toronto, just under 20 per cent of all new listings brought to market were left unsold.“Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019,” says Jason Mercer, TREB’s chief market analyst. “Increased competition
between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”
Cheap mortgages will stick around
The silver lining for home buyers in 2020 will be a relatively inexpensive cost of borrowing, as it’s
The Bank of Canada has indicated it plans to hold rates this year. If there are any unforeseen economic upset, a cut would result, rather than a hike. Tension over U.S.-China trade relations, as well as growing unease in the Middle East, will inform the Bank of Canada’s approach.
There may also be relief on the way for those who continue to have their affordability greatly affected by the stress test. The Prime Minister’s Office has demanded the finance minister to explore on making the test more “dynamic”. While it’s not certain what changes could take place, there’s speculation that its higher-interest qualification hurdle could be reduced, or perhaps adjusted for borrowers with good credit. As well, they could remove the current requirement for borrowers to be re-stress tested when switching lenders, a measure that has drawn heavy criticism from the mortgage industry for discouraging consumer empowerment and competitiveness.
In all, it’s already shaping up to be a busy year for the real estate industry, and it will be interesting to see how growth clocks in within Canada’s major markets as the first year of a new decade unfolds.