Here’s why Canadian home prices won’t surge anytime soon, according to experts

After a slow start to the year, Canadian home prices have been warming up for months. But does that mean that the market will gradually return to the record highs seen in spring of 2017?

Not anytime soon, according to many industry experts. While much of the downward pressure on the market has started to ease, there are several factors standing in the way of a full-blown prices boom.

For a closer look at the current situation, Livabl has rounded up the latest expert commentary, to keep you in the know.

Interest rates are going up

The Bank of Canada is widely expected raise its mortgage rate-influencing overnight rate on October 24. On Tuesday, a relatively weak housing starts report led economists to predict that the hike was pretty much a sure thing.

“Demand continues to be supported by the fastest population growth in 27 years and new millennial-led households,” wrote Sal Guatieri, a senior economist with BMO. “A calmer housing market is just what the doctor ordered, and won’t discourage the Bank of Canada from raising rates on October 24.”

Over at RBC, senior economist Nathan Janzen agrees that the starts report all but guarantees the BoC will raise rates on the 24th.

“Earlier housing market activity was probably too strong to be sustained,” he wrote, in a recent note. “The slowing to a more manageable pace of activity should be welcomed by the Bank of Canada and isn’t expected to prevent further gradual interest rate hikes.”

Policy is still dampening the market

Rising interest rates will likely dissuade some would-be homebuyers from entering the market in the coming months. That, combined with the lingering impact of new mortgage rules which came into effect in January, should put a damper on price growth.

“[Slow home price growth in September] may indicate that the worst adjustment to factors like [new mortgage rules] is working its way through,” wrote Derek Holt, VP and head of capital markets economics at Scotiabank, in a recent note.

The comments echo a recent forecast from Moody’s Analytics and RPS Real Property Solutions, which predicted a period of slower price growth over the next five years.
“The national housing market still has a long way to go before it regains the level of affordabil­ity it had before 2015, when prices in Toronto and Vancouver took off, but has now taken the first steps to do so,” wrote Moody’s economist Andrew Carbacho-Burgos, in the report.

Markets in the west are struggling

And not every market is dealing with the same conditions. While prices have been steadily rising in Toronto, Vancouver and Calgary have continued to struggle for months.

The Teranet-National Bank Composite Price Index remained flat last month, largely as a result of the underperforming western markets.

“When seasonal effects are removed, the composite price index edged up in September, recovering some of the ground lost in previous months,” writes Marc Pinsonneault, a senior economist at National Bank. “While this applies in particular to Toronto, it is not the case for Vancouver and Calgary, where the seasonally adjusted indices extended a string of declines.”

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