Housing market dampened by regulation and rate hikes

Recent efforts by policy-makers and regulators have successfully cooled the Canadian housing market after years of false starts due to ultra-low interest rates. The new B20 guidelines and increasing mortgage rates will continue to deflate prices over the coming months, with stabilization expected in 2019, according to a new TD Economics report.

"While some markets may be very sensitive to the B20 rule revision, given a combination of an abundance of uninsured mortgages and stretched household incomes for instance, others may barely feel its impact," said Michael Dolega, TD Senior Economist. "The same applies to the impact of rising rates or incoming supply."

Report Highlights

  • The B20 stress test to ensure borrowers can withstand interest rate increases could reduce the perceived purchasing power of some households by as much as 15%. Buyers will rely on non-bank financing to a greater extent, including family loans and asset sales.
  • Ontario and B.C. are expected to endure the brunt of the impact. In Quebec and, to a lesser degree, Manitoba, solid economic conditions combined with the high share of credit unions and caisses populaires that are exempt from B20 should lead to stronger performance in the housing market.
  • Sales activity in Alberta and Saskatchewan continued to disappoint. In both markets, an oversupply of housing and the plunge in oil prices have weighed on the real estate market. 

For more information and analysis, click here for the full TD Economics report.