The Latest in Mortgage News: 2020 Forecasts

Following a challenging 2018, by most accounts 2019 could be characterized as a “turnaround year” for Canada’s housing market. And 2020 is looking to bring much of the same.

That’s according to predictions for the new year by CMHC, the Canadian Real Estate Association (CREA) and several real estate firms. But while sales are forecast to pick up, housing inventory will continue to lag demand, putting continued pressure on prices, according to CREA.

Here’s a look at the latest housing and interest rate forecasts for 2020:

CREA Says “Lack of Supply” Will be the Story in 2020

Housing activity is expected to improve in 2020, with prices continuing to rise in many parts of the country, according to CREA.

Asuburbsside from the Prairies and Newfoundland and Labrador, CREA says the economic fundamentals underpinning housing activity remain strong. Population and employment growth, as well as no expectation of interest rate hikes in 2020, are also continuing to support the resale market.

2020 Forecasts

  • Average house price: $531,000 (+6.2%). Small declines are expected in Alberta, Saskatchewan and Newfoundland and Labrador, with “solid” gains expected in Ontario, Quebec and the Maritimes.
  • Home sales: 530,000 (+8.9%). CREA says this growth rate is primarily caused by a weak start to 2019 for home sales. Home prices for 2019 are on track to come in at $500,000, a 2.3% increase from 2018.

CREA notes the turnaround in real estate in the latter half of 2019 was driven largely by a fall in new listings—a trend that is expected to continue in 2020.

“These trends have caused many housing markets to tighten, which has sharply lowered the national number of months of inventory,” CREA noted. In November, this measure fell to its lowest level since mid-2007. “This is resulting in increased competition among buyers for listings and providing fertile ground for price gains.”

Housing Recovery in Store for 2020, Says CMHC

Housing activity in Canada is expected to recover in 2020, supported by economic and demographic conditions, according to the Canada Mortgage and Housing Corporation (CMHC).

It also expects overvaluation concerns in Toronto and Vancouver to continue to subside.

“Recent measures of overvaluation for the major markets of Vancouver and Toronto, as well as for those in their vicinity, indicate a general easing of vulnerabilities as prices have been gradually aligning more with fundamentals in recent quarters,” CMHC’s Housing Market Outlook reads. “The current outlook for renewed growth in home prices over the forecast horizon does not imply that overvaluation and/or price acceleration measures will necessarily worsen…”

2020 Forecasts

  • Average MLS Price: Between $506,200 and $531,000. This will follow two consecutive years of decline from the peak reached in 2017. “However, positive price growth is expected to resume in 2020 and 2021, driving the average price above its 2017 level by the end of the forecast horizon,” CMHC said.
  • MLS Sales: Between 480,600 and 497,700. After remaining at their 2018 levels throughout 2019, sales are expected to rise in both 2020 and 2021, CMHC says, adding this forecast “reflects expectations of household disposable income growth.”
  • Housing Starts: Between 194,000 and 204,300

Real Estate Firms Forecast Prices to Rise 3%+ in 2020

Both Royal LePage and RE/MAX foresee a healthy bout of house price appreciation across the country in 2020, with price growth forecasts of 3.2% and 3.7%, respectively.

crea home price report november 2019Increased consumer confidence is expected to drive much of the gains next year, according to RE/MAX.

“As more Canadians have adjusted to the mortgage stress test and older millennials move into their peak earning years, it is anticipated that they will drive the market in 2020, particularly single millennials and young couples,” reads the 2020 Housing Market Outlook Report.

It also expects a “levelling out” of the highs and lows that characterized the 2019 housing market, particularly in Toronto and Vancouver.

Royal LePage echoed that assessment, saying: “The positive outlook for Canadian real estate in 2020 is based on healthy buyer demand. A segment of potential homeowners that once put home purchasing on hold beginning in January 2018, due to the introduction of the mortgage stress test, started returning to the market…driving competition and demand.”

It added that a decline in high price appreciation in the condominium segment in recent years “reflects a shift in millennial demand towards houses and is expected to reinvigorate sales activity in the suburbs.”

Where Are Interest Rates Going in 2020?

After spending all of 2019 on the sidelines and leaving rates untouched, the Bank of Canada is expected to deliver a long-awaited 25-bps rate cut in 2020.

The BoC’s target overnight rate remained at 1.75% throughout 2019, thanks largely to a strong domestic economy in the face of global headwinds. Meanwhile, more than 40 central banks around the world have cut interest rates in recent months.

“We expect sub–trend growth will continue through the early stages of 2020, testing the BoC’s patience,” economists at RBC Economics wrote in a research note. “We look for a rate cut in Q2, but acknowledge that persistent strength in housing and earlier fiscal stimulus could keep the bank on the sidelines.”

Overnight Index Swap markets are currently pricing in a roughly 30% chance of a rate cut by July, according to Westpac.

2020 mortgage forecasts