The chief economist of one of Canada’s biggest banks suggests that not long from now the recent trend of home price declines in Toronto may be a thing of the past. “Fundamental supply-demand factors should contain the price declines very soon,” writes Douglas Porter, BMO Economics’ chief economist, in a recent report.
“However, the Bank of Canada rate hikes and coming OSFI measures should prevent speculative froth from building again, and prices can return to rising at a reasonable pace again for the remainder of the cycle,” he continues.
Porter is referring to recently announced mortgage-qualification regulations from the Office of the Superintendent of Financial Institutions, the Canadian government’s financial-sector watchdog, as well as the central bank’s recent back-to-back hikes to the overnight lending rate, which influences the mortgage market.
The suite of changes, which comes into effect next year, from OSFI includes a tougher process for mortgage applicants. All uninsured mortgages are now subject to a stress test that requires applicants to qualify against a rate that is 2 percentage points higher than the Bank of Canada’s five-year benchmark rate or the rate the applicant is applying for.
Prior to OSFI’s October announcement, BMO Senior Economist Robert Kavcic told Harvey Kalles Real Estate, “Because it’s targeting the uninsured market it probably ends up having a bigger impact than some of the smaller changes we’ve seen in the past.”
Already, Porter suggests the forthcoming measures may be having an effect on existing home sales activity nationally. He notes that on a seasonally adjusted basis national sales in October were up 0.9 per cent from November, the third consecutive time activity increased month on month. “Note that overall sales may be seeing a small lift ahead of the regulatory changes that kick in at the start of 2018,” Porter writes. Buyers may be trying to get mortgages approved before the new regulations take effect, though Canadian home sales are shy 4.3 per cent from levels recorded this time year.
Meantime, the number of homes changing hands in Toronto last month increased 2.5 per cent compared to September, an encouraging sign BMO Economics suggests, though annual activity remains down 27 per cent.
“The closely-watched adjustment in the Toronto market is ongoing, but signs of stability have emerged, especially in the condo sector,”
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