Poll: Canada's frothy housing market likely to cool on new mortgage rules
By Anu Bararia
(Reuters) - The Liberal government's new mortgage rules are likely to sober up Canada's housing market over the coming year, a Reuters poll showed, but record-low borrowing costs should bolster demand.
After soaring on the back of rock-bottom interest rates and foreign investment, Canadian house prices are expected to slow to 1.8 percent in 2017. An August poll forecast 3.5 percent.
The property market - a key driver of Canada's economic growth - will be hit by tighter lending rules the government imposed in October, in an effort to cool activity in two of the country's biggest cities, Toronto and Vancouver, analysts in the latest survey of over 20 respondents said.
"You will see some negative impact coming from the changes to regulations and I will not be surprised if house price inflation in Vancouver, the GTA (Greater Toronto Area), and even Montreal, slides down, or if we see some negative numbers," said Benjamin Tal, deputy chief economist at CIBC Capital Markets.
Toronto house prices are expected to rise 6.0 percent next year and fall 1.8 percent in Vancouver, compared with the previous poll's expectations they would rise 8.0 percent and 5.0 percent. A majority of analysts said the risks to their current forecasts were skewed to the downside.
While U.S. real estate prices only recently got back on track after their collapse in 2007, in Canada they have risen nearly in a straight line, almost doubling over the last decade.
Two rate cuts by the Bank of Canada last year to combat the fallout of the 2014 oil price crash further spurred housing activity in Canada, encouraging households to borrow ever more heavily against ever more expensive properties.
In the second quarter of this year, the average Canadian household owed $1.68 for every dollar of disposable income. Continued...