RBC: cooling market in 2015 but real test to come
Justin da Rosa
Other
One reader believes variable rate mortgages will continue to be the best option for clients going forward, following one big banks market forecast for 2015.
“I think this forecast means that prime rate will remain low just that much longer as it is the only interest rate that the Bank of Canada can control – almost directly,” Layth Matthews of RateMiser said on MortgageBrokerNews.ca. “So variable rate mortgages are still the risk-adjusted best way to go.”
The comment was in response to RBC forecasting housing pricing deceleration and a cooling market next year.
“We expect that rising interest rates and increasingly strained affordability will cool Canada’s housing market during the next year and cause home prices to decelerate substantially in 2015,” the Royal Bank’s most recent Canadian Housing Forecast report states. “We forecast home resales to edge slightly lower by 0.9 per cent to 463,100 units nation-wide in 2015 following an increase of 2.1 per cent to 467,200 units in 2014; and home price gains to moderate to just 1.1 per cent next year from 4.3 per cent this year.”
RBC’s latest forecast joins a chorus of economists who also expect a soft landing next year, including the Conference Board of Canada.
“The apartment condominium market enjoys a reasonable outlook; after considerable angst about prospects of a general housing market crash, most analysts, including us, now believe the Canadian market is not a bubble about to burst, but will land softly,” the conference board’s latest report, commissioned by Genworth Canada states. “There are pockets of higher risk, like potentially overbuilt condominium markets in several eastern cities, notably Toronto, and the possibility that slowing offshore demand could derail market recovery in Vancouver.”
For its part, RBC believes 2016 may see more drastic declines.
“The bigger test could well await after 2015 should interest rates normalize fully over the medium term,” the report states. “In this case, we could see outright price declines in the 2016 or later timeframe because we believe that prices will be the principal adjustment mechanism preventing affordability from reaching dangerously poor levels in the face of a substantial cumulative rise in interest rates – growing household incomes would provide only partial offset.”
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