Five ways Canada’s house building market will differ from the U.S. in 2016

The U.S. economy is growing and unemployment dropping. In Canada, it’s almost the opposite. Where does that leave us for 2016?

1. Prices and sales volumes

USA: As posted on housingwire.com, U.S. residential real estate company Redfin predicts housing prices and sales will continue to grow in 2016, just at a slower pace. “Call it a slowdown, but not bad news.”

Canada: Canada Mortgage and Housing Corporation foresees a poor outlook for the housing market for 2016 and beyond, predicting dismal price growth. The CMHC expect prices to barely keep pace with inflation through to 2017 and that sales and new construction will slow down.

 2. Credit availability

USA: Despite the recent 0.25% increase in the U.S. Fed rate, Redfin believes more Americans will have a better chance at qualifying for one next year than before.

Liberal policy changes effecting mortgages are tightening the screws for many prospective home onwers

Canada: The Liberal government earlier this month tightened rules for CMHC-insured mortgages, raising required down payment minimums to 10% from 5% for that portion of the mortgage over $500,000. Banks have likewise increased their down payment requirements while becoming increasingly conservative with their home value appraisals. This is despite the Bank of Canada musing about the possibility of negative interest rates ahead.

 3. First-time buyers

USA: According to Redfin, more (and older) first time home buyers will enter the market “thanks to the aforementioned slowing price growth and easier access to loans.”

Canada: First-time buyers will have mixed success in Canada depending on where they want to live and if they have a job. In Alberta, and Newfoundland, for example, homes are expected to decrease in value, correlating to employment prospect in those provinces. In the high-flying markets of Toronto and Vancouver, tighter credit (as described above) will not make access easier for first-time buyers.

 4. Time on the market
USA: More days on the market and longer closing dates are expected in 2016. Redfin believes this is due to increased use of government–backed loans, which take more time for approval.

Canada: While market speed will vary across Canada, with Toronto and Vancouver continuing expected to be fast moving markets, longer sales time and slower closings in other areas of the country will be a result of tighter credit conditions and changes to the CMHC down payment requirements for high-levered transactions.

Inventory conditions

USA: Redfin sees potential trouble ahead in 2016: A continuing inventory shortage “especially in the affordable segment of the market.” Increased demand from the above-cited first time buyers accessing easier credit is the likely cause.

First-home conumdrum: the prices are only dropping where job prospects are dim

Canada: A great deal of housing activity in Canada is the result of condominium and multi-unit construction in major markets, now higher than at any time since 1971 according the CMHC, yet quite variable from month to month.  Low availability of existing single family homes continues to stress buyers in major markets, whereas inventory is growing in the slower ones. Markets may also be experiencing an “affordability-based transition of demand from singles to multiples”, says Bob Dugan, chief economist at the Ottawa-based housing agency, due to a “growing price gap” between detached homes and condominiums.

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