Real estate and Mortgage Forecast 2020
Canada’s national housing agency is forecasting Toronto region home prices to rebound in the next two years, rising as much as 5 per cent in 2020 to an average of between $765,300 and $898,400
This year is predicted to end with prices averaging between $740,600 and $854,600.
It predicts prices could average as much as $949,400 by the end of 2021, a 10.5 per cent increase over this year.
Sales and new home construction, led by the high-rise sector, are also expected to fully recover after the market lull of the last two years, according to the annual Housing Market Outlook from Canada Mortgage and Housing Corp. (CMHC) released on Thursday.
The complex geopolitical landscape, including an upcoming U.S. election, trade wars and Brexit, made the report’s forecast among the most difficult. But those are the conditions that are also expected to keep interest rates low, said Dana Senagama, CMHC manager of market analysis for Ontario.
She said consumers can expect their monthly mortgage payments to remain stable through the end of 2021, the period covered in the report.
CMHC says the Toronto region market is heading back into more balanced and sellers’ territory thanks to high employment, the influx of immigrants and migration from other provinces.
Although policy changes such as stricter mortgage qualifications and a foreign buyers tax have slowed housing activity in the last couple of years, the resurgence of Toronto’s housing market was inevitable, said Senagama.
Purchase activity picks up – Are rental investors are crowding out homebuyers?
2019 began as another slow year for home purchases but buyer interest has picked up. Our research suggests that current prices are not affordable to people with local jobs regardless of how many people move to the GTA. As well, it appears rental investors are buying a large share of new condos and renting them out at a loss. They are banking on future price gains to make their investment pay off.
The number of Metro Toronto houses purchases is trending higher than the past two years while the number Metro Toronto houses listed for sale has been trending a little lower than past years. These trends of higher demand and lower supply explain the house price gains.
Should Investors Sell?
From a seller’s perspective, now is a better time to sell than in two years as CMHC, a Government of Canada Agency predicts that house prices will be flat or drop for the next two years .
To benefit from the best-case scenario, a home buyer should talk to their mortgage broker about prioritizing flexible loan conditions and mitigating risk.
Potential for a highly supplied market
There’s potential for an overwhelming surge in supply and this would bring more downward pressure on prices.
74,000 homes are under construction in Metro Toronto (51,500 in the City of Toronto) in February 2019, which are due to complete in 2020 and 2021. If a significant number of those homes were pre-purchased with the intention to flip them, they could bring a ton of supply to the market.
Rate Forecasts Are Only Educated Guesses
No matter how well-researched and modelled an economist’s prediction is, mortgage rate forecasts are still only educated guesses and, at best, they are as accurate as a weather forecast. They further into the future that a forecast is made, the less accurate it is. Most of last year’s forecasts did, however, correctly anticipate three rate hikes, but they didn’t predict an economic cool down that would put a pause on rate hikes.
Lock in a 5-Year Fixed Rate?
For the next 6 months, fixed rates will probably be lower or the same as today. So, locking in today’s 3.00% 5-year mortgage rate will definitely start benefiting you if variable rates begin to climb. If you are inclined toward a fixed rate mortgage, our advice is to speak to a Mortgage Broker as early as possible to lock in a rate. You can lock in a rate up to 120 days before closing on a home sale or the renewal of your mortgage. If you are planning to sell or move in the next few years, however, locking in a rate can result in a large penalty fee if you cancel before the full term is completed. Just be sure that you factor this into your decision.
If you have a fair risk tolerance, variable rates seem like the best bet. Based on the latest forecasts, variable rates are more likely to fall than rise in the next two years and in a flat or falling rate environment variable rates generally save borrowers more in interest costs.
Buy a Home Now or Wait For The Next Cycle?
If you plan to buy in the next 3 years, be mindful that falling rates increase the amount of mortgage financing a bank can offer you. This means you have a larger home buying budget to work with and so will other buyers. On the other hand, rates will be dropping due to recession concerns and distressed sellers (e.g., laid off, divorce, bankruptcy) put downward pressure on home prices. It’s possible that low rates will provide more purchasing power in a market with dropping house prices. That would be a huge gain for home buyers. Home prices in Western Canadian markets have been steadily dropping since 2018, so don’t feel pressured to rush into the market and don’t pay more than the list price.
2018 was a good time to buy because buyers had more negotiating power than in 2016. Supply has dwindled in 2019 but still better than 2016. 2020 may be even better. If enough housing stock comes to market and supply catches up with buyer demand, then bidding wars could become rare.
If you are thinking of buying just be sure to drive a hard bargain and cover your bases with smart and educated decisions. Don’t bite off more than you can chew.
Most economists correctly forecasted that the Bank Rate would remain unchanged until after the federal election in Canada. Only 6 months ago, the same economists thought rates would stay flat until mid-2020.
Now they’re starting to predict rate drops. Some even predict 2 rate drops by March 2020! The Bank Rate set by the Bank of Canada Rates is raised when the economy is doing well but if there is a recession then low rates are used to stimulate the economy. Since the economic forecasters are expecting rates to begin dropping it implies they are factoring in an economic slowdown. That may be helpful for moderating red-hot real estate markets in Central and Eastern Canada but it’s bad news for home sellers in Western Canada who are already struggling with weak demand.
To get access to experts who know what every lender is doing, consult a mortgage broker. They have the broadest number of options to find you suitable financing.
Sources: www.thestar.com /Mortgage SANDBOX