Has Canada’s housing market achieved the elusive ‘soft landing’?

By: Jessica Mach on August 12, 2019

As the Bank of Canada assesses the state of the Canadian economy in preparation for its Sept. 4 rate announcement, there’s one thing that the central bank probably won’t be worrying about: the housing market.

Tough federal housing policies like the mortgage stress test, in combination with more localized rules like speculation, vacancy, foreign buyers and Airbnb taxes, have helped rein in runaway home prices and demand over the past year and half. While sales and prices initially dropped to levels that were lower than desired, Canadians have since adjusted to the regulations and the housing market is starting to grow again — albeit at a more sustainable pace, said Sal Guatieri, senior economist at the Bank of Montreal.

“With few exceptions, the market has absorbed earlier measures and is now warming without overheating,” Guatieri wrote in a BMO Capital Markets report released last week.

That suggests that Canada’s housing market may very well have achieved the elusive “soft landing” — meaning slowing or contracting in a controlled way. The opposite would be a “hard landing”.

The value of home sales rose across Canada in the second quarter of 2019, after falling in four of the past five quarters.

Guatieri credited this improvement to strong job and population growth, both of which help increase housing demand. Five-year fixed mortgages rates also recently fell due to developments in the bond market, making it an appealing time for homebuyers to secure their purchases.

After declines in demand, both Vancouver and Toronto are seeing some upward momentum again. In July, home sales in the Greater Toronto Area grew by more than 24% year-over-year, according to the Toronto Real Estate Board. Vancouver saw a similar increase of 23% in home sales that same month, said the Real Estate Board of Greater Vancouver.

Guatieri predicted that home prices in Vancouver will also recover later this year, “sooner than previously thought.”

His verdict? The country’s housing market is “well positioned for at least moderate gains in sales and prices in the year ahead.”