December 13, 2017 6:00 am
Updated: December 13, 2017 8:28 am

Here’s what the new mortgage rules will do to home prices in 2018: Royal LePage

New mortgage rules that take effect Jan. 1 won't prevent home price appreciation in much of Canada, a report by Royal LePage predicts.

THE CANADIAN PRESS/Graeme Roy
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New mortgage rules coming into effect on Jan. 1 won’t trigger home price decreases, according to Royal LePage’s 2018 outlook for the Canadian housing market.

The real estate powerhouse sees home prices climbing 4.9 per cent by the end of next year, up to $661,919. The estimate is based on a composite price index that measures home prices in 53 Canadian cities.

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READ MORE: On Vancouver housing, Bill Morneau cites ‘stress tests’ that don’t seem to have cut prices

The impact of the regulations won’t be exactly nil.

“The new measure will slow the housing market, particularly in the first half of 2018, as buyers adjust both their expectations and finances,” reads the report.

As of Jan. 1, most Canadians planning to buy a home with a downpayment of 20 per cent or more will face a stress test that ensures they would be able to cope with higher interest rates, a measure that’s already in place for homebuyers with smaller down payments, who require mortgage insurance. Tougher standards will also apply to those applying for refinancing or switching lenders when renewing their mortgage.

READ MORE: New mortgage rules 2018: A practical guide

But the effect of Ottawa’s latest round of rules-tightening will be muted, especially in the country’s hottest markets of Toronto and Vancouver, the report predicts.

“Attempting to use public policy to steer property prices in huge, rapidly growing cities like Toronto and Vancouver is like a tugboat trying to turn an ocean liner,” according to Phil Soper, president and CEO at Royal LePage. Although he concedes, that “consistent, measured policy can have a positive impact.”

Buyers of detached homes in the Greater Toronto Area (GTA), for example, will be able to be pickier, enjoy a greater selection of homes on the market and face less competition from other buyers, the study suggests.

But in most Canadian cities the rules might make life harder for first-time buyers and others will smaller budgets, as demand for entry-level properties will “surge,” especially in the condominium segment.

And by making it harder for many to afford a home, the rules might also put additional pressure on the rental market, at least in Toronto and Vancouver, the report suggests.

READ MORE: Vancouver approved a condo project, in part, because it had rentals. They cost $5,400/month

According to a recent survey, over 75 per cent of Royal LePage agents in the GTA saw a year-over-year increase in multiple offers on rental properties, while nearly 60 did note the same in Vancouver.

“The pipeline of potential homebuyers providing a market price floor is growing and this growth trend is expected to continue through 2018,” according to the market outlook.

WATCH: New mortgage rules mean you might have to buy a smaller home

Here’s what Royal LePage foresees for major Canadian cities:

Greater Vancouver
2018 forecast: prices up 5.2 per cent; weighted average prices rises to: $1,353,924
2017 forecast: prices down 8.5 per cent; weighted average price: $1,126,000

“One potential risk to the region’s housing market is further interest rate hikes as home prices are substantially higher in this region when compared to other Canadian markets. Interest rate hikes generally put upward pressure on the Canadian dollar, which also stifles interest from foreign buyers.”

Calgary
2018 forecast: prices up 2.3 per cent; weighted average price rises up to: $494,109
2017 forecast: prices up 2.5 per cent; weighted average price: $472,500

“Continued strong competition for homes priced between $400,000 and $500,000, coupled with the incoming […] stress test, will likely push first-time buyers into the condo segment,” said Corinne Lyall, broker and owner at Royal LePage Benchmark.

Edmonton
2018 forecast: prices down 1.5 per cent in 2018; weighted average price dips to: $382,180
2017 forecast: prices down -0.9 per cent; weighted average price: $375,000

“The best advice I can give a seller in Edmonton is to make sure your pricing is very accurate,” said Tom Shearer, broker and owner at Royal LePage Noralta. “A trend we will continue to see in 2018 as we remain in a buyer’s market, is heightened price sensitivity. Buyers expect to negotiate within 2 to 3 per cent, and if you are outside that range they just move on.”

Regina
2018 forecast: prices up 0.7 per cent; weighted average price: $329,289
2017 forecast: prices up 1.0 per cent; weighted average price: $344,000

“Home sellers need every available tool to properly market their home if they want to sell this coming year,” said Mike Duggleby, broker and managing partner at Royal LePage Regina Realty.

Winnipeg
2018 forecast: prices up 4.0 per cent; weighted average price rises to: $315,120
2017 forecast: prices up 2.0 per cent; weighted average price: $295,000

“The region’s economy has benefitted from an increase in population and a low unemployment rate, which are expected to continue to put upward pressure on home prices and help maintain strong sales activity consistent with 2017 levels.”

Greater Toronto Area
2018 forecast: prices up 6.8 per cent; weighted average price rises to: $901,392
2017 forecast: prices up 10 per cent; weighted average price: $793,000

“While the condo market should continue to see price growth from high demand, buyers looking at detached properties in the first quarter will be able to ask for conditions, have a much greater selection and should be competing against fewer multiple offers,” Shawn Zigelstein, sales representative at Royal LePage Your Community Realty, said in the report.

Ottawa
2018 forecast: prices up 3.2 per cent; weighted average price rises up to: $458,208
2017 forecast: prices up 1.7 per cent; weighted average price: $423,000

“Most buyers who migrate to Ottawa have found employment locally prior to arriving, however, we are still seeing a surge of demand from buyers employed in Toronto who have the ability to work remotely full or part-time,” said Royal LePage Team Realty broker Hanna Browne.

Greater Montreal Area
2018 forecast: prices up 5.5 per cent; weighted average price rises to: $408,285
2017 forecast: prices up 4. per cent; weighted average prices: $386,000

“Purchases made by foreign buyers in high-end neighbourhoods such as downtown, Westmount and Ville Mont-Royal are expected to continue. The strong local economy and relative affordability are credited for driving consumer demand from this demographic.”

Halifax
2018 forecast: prices up 2.5 per cent; weighted average price rises to: $326,975
2017 forecast: prices up 2 per cent; weighted average price: $317,000

“Inventory in the downtown core is expected to remain low and sales are expected to increase modestly by the end of 2018.”

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