The CREA Updates 2018 Forecast Due To New Harder Mortgages Rules

The Canadian Real Estate Association (CREA) recently cut back on its home sales predictions for 2018 due to the tougher mortgage regulations that came into force on New Year’s day. The body anticipates that buyers will limit their spending as a result of the new regulations.

In a recent projection, the CREA stated that the Banking Regulator’s Revised Mortgage Underwriting Guidelines that came into effect on January 1st comes with a stress test for uninsured mortgages. The new regulations are expected to cause decreasing sales throughout the country, especially in Toronto and Vancouver.

The umbrella group of Canadian realtors now predicts that this year there will be a 5.3 % fall in sales of housing units countrywide to 486,600 units . The revised forecast is 8,500 units less than the previous forecast. National average housing unit prices are also expected to drop by 1.4 % to $503,100.

CREA warns that with many home-buyers concluding their purchases in the later part of last year before the new rules came into effect on January 1st, the ‘pull-forward’ effects of these sales may dent sales figures in the first half of 2018.

“Meanwhile, other potential home-buyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018”-a release from the association stated.

Last November, there was a 3.9 % increase in the number of homes sold through the Multiple Listing Service compared to the October sales. In the Greater Toronto Area sales went up by 19 %. Sales were also up 2.6 % from November 2016, leading to the first year-over-year increase since March. This lead to a spike in national home prices by 2.9 %  to $504,000. Home listings also went up by 3.5% in November leading to a surge in supply especially in the Greater Toronto Area.

The CREA forecast revisions were as a result of the revised guidelines from the Office of the Superintendent of Financial Institutions (OSFI) called B-20 released in October 2017. The new regulations makes it mandatory for potential home-buyers to show that they can still service their uninsured mortgages at a qualifying rate of the contractual mortgage rate plus two percentage points or the five-year benchmark rate released by the Bank of Canada.

The CREA is of the view that these new guidelines make it harder for potential buyers who have more than a 20 per cent down payment to qualify for a mortgage thus the reason for their revised forecasts.


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