Canada’s housing market is in a cooling phase, according to RBC’s Canadian Housing Market Forecast Update released October 11, and home resales across British Columbia are expected to drop this year and next.
Higher borrowing rates will contribute to an 8% decline in home resales across the province next year after a total anticipated 9.8% drop this year.
“Our view is that the B.C. market will be particularly sensitive to higher borrowing rates, as they will take a further toll on already-strained housing affordability in markets such as Vancouver and Victoria,” the institution said in its report.
“Policy measures – including a 15% tax on purchases by foreign nationals in Metro Vancouver – implemented last year contributed to cool activity markedly in the province in 2017.”
Despite the drop in unit sales, prices are forecast to increase in both 2017 (up 6.5% to a provincial average of $763,200) and 2018 (up 5% to $801,100). The growth will be driven by “surprisingly tight” demand across B.C.
“Policy measures also promoted many would-be sellers to hold off listing their properties for sale earlier this year,” the report said.
“Nonetheless, we expect gradual erosion in those market conditions, which will temper price increases next year.”
The report also forecasts a drop in home sales across the country. Expect unit sales to drop 4.8% this year and 4.2% next year, RBC said. These declines will not completely offset the increases seen between 2014 and 2016 which led to an all-time high of 535,200 units in 2016. Total sales for 2018 are forecast to hit 488,000, which, as RBC pointed out, is still above the 10-year average of 471,700.
RBC said it expects the Bank of Canada to increase its overnight lending rate by a full percentage point by the end of next year, from the current 1% to 2%.
“Including the 50-basis point increase already implemented since mid-July, the projected cumulative rise of 150 basis points would constitute the most significant monetary policy tightening in Canada since 2007,” RBC said.