Mortgage Plans and the Canadian Housing Market Outlook for 2020

Industry research has shown that Canada’s housing market is anticipating a good year, which means now’s a good time for homebuyers to get in. Previously hot housing markets like Vancouver and Toronto had vulnerability ratings of moderate rather than high. New homebuyers in those areas would be smart to get their mortgage plans ready and start shopping around.

Housing Market Brief

Numbers from the last quarter of 2019 found that a couple of markets that had previously been ranked as high vulnerability dropped to moderate. The Toronto and Hamilton housing markets were downgraded in the CMHC Q4 report. Moreover, Vancouver’s degree of overall vulnerability has remained moderate, yet there are still signs of overvaluation in the market.

Other areas such as Edmonton, Calgary, Saskatoon, Regina, and Winnipeg also have moderate rankings when it comes to the degree of overall vulnerability. However, these areas have shown signs of overbuilding.

Still, other Canadian housing markets hold a low degree of overall vulnerability, including Ottawa, Montreal, Quebec, Moncton, Halifax, and St. John’s. Yet, the CMHC noted that both Montreal and Moncton showed signs of overheating. The organization also stated that on the west coast, Victoria did not have any evidence of overheating during the fourth quarter. According to the Canadian Real Estate Association, home sales are expected to be over 530,000 units this year. That represents an 8.9 percent raise over the previous year. The Association also predicts that house prices will see a 6.2 percent increase to an average of $531,000.

Housing Trends for 2020

Canada’s real estate industry has garnered worldwide headlines over the past few years. Here are some of the trends to expect in this new decade:

1. Home sales will grow. After the 2018 slump, followed by a session of lower sales and higher prices, the real estate industry is now starting to improve in 2020. The adjustment to the overall vulnerability rate in several markets across the country points to a strong market. Vancouver and Toronto have already seen the beginnings of a rebound. Low mortgage rates and ease on the stress test qualifying rate caused many homebuyers to enter the market over the past few months. This trend is expected to continue for the rest of 2020.
2. British Columbia and Ontario will lead. The housing markets in BC and Ontario will be the leading ones for the next several months. BC, in particular, will start to recover after changes to the housing tax rules and a crackdown on non-resident and foreign buyers. It has been predicted that housing sales in BC will increase at least 20 percent, with over 80,000 transactions expected. In Ontario, sales and prices are both expected to rise, with nearly 213,000 units expected to be sold. Prices in the province are predicted to increase between 5 and 6 percent.
3. Sellers have the upper hand. Listings have been failing to meet demand over the past couple of years. Over the next several months of 2020, that will change. More listings will hit the market, but it still won’t be enough to meet the demand. 2020 will be a sellers’ market.
4. Rates will stay low. The good news for home buyers is that mortgage rates will stay low. With the Bank of Canada keeping the lending rate low, banks and other financial institutions will follow. This will encourage home buyers to take the plunge and seek loans for their purchase.
5. Possible changes to the stress test. There have been signs that some changes may be made to the new stress tests for those applying for mortgages. The Prime Minister has indicated that his Finance Minister will be reviewing the criteria of the stress test. Some of the potential changes would be a reduction to the qualifying rate as well as taking away the need to have borrowers re-tested if they change mortgage providers.

Low Mortgage Loans

Despite the improvements to many of these housing markets, mortgage loans have been low over the past few years. Yet, the value of mortgage loans has gone up. This means that while fewer people have been buying homes, the cost of the houses that are being bought is quite high.

This has led to mortgages being the most common cause of household debt across the country. The CBC reported that mortgages represent two-thirds of household debt for Canadians.

Using Your RRSP for Your Mortgage

Homebuyers who are interested in taking advantage of a cooling market and low mortgage rates can now use their RRSP savings to help pay for their home purchase. The RRSP Home Buyers Plan allows people to use up to $25,000 of their retirement savings towards a down payment for a home. The money is considered a loan that you will need to repay over the next 15 years. One of the advantages of this program is that you and your spouse may each use up to $25,000 of your RRSPs, meaning you could have $50,000 as a down payment for a home.

Conclusion

The housing market in Canada this year is expected to cool down, making it a good time for homebuyers to enter the industry. The CMHC has reduced the degree of overall vulnerability for several markets across the country, including Vancouver and Toronto. Other markets, such as Edmonton, Saskatoon, Winnipeg, and Regina, have moderate degrees of overall vulnerability. In addition, several markets hold a low degree of overall vulnerability, such as Ottawa, Montreal, Moncton, Quebec, Halifax, and St. John’s.

As more listings are expected to hit the market and mortgage rates remain low, homebuyers may find that this is the right time to buy their dream home.

For more information about mortgage options, call Mortgages Mortgages at 1-866-307-0747 or contact us here.