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The first quarter of 2018 saw Canadian home sales plunge year-over-year for three consecutive months, as the market adjusted to the effects of a new mortgage stress test. But is the market on its way to leveling out? Well, yes and no. Read on for three things to keep in mind about the market as it currently stands.

There’s been progress already. After a steep 14.5 per cent drop in national home sales in January, sales have been inching up on a month-over-month basis. According to TD Senior Economist Michael Dolega, while red hot markets will continue to cool in coming months, most Canadian markets are well on their way to adjusting already. “Canadian housing markets are likely to remain under pressure from the recent mortgage rules,” he stated in a recent article. “However, lower-priced markets where affordability is good should generally outperform in the current environment.” 

Interest rates won’t be raised in the near future. After years of historically low interest rates, the Bank of Canada has been slowly but surely hiking the overnight rate over the last year. This affects mortgage rates, so when it goes up, so do mortgage payments. Right now, it sits at 1.25 per cent, after a January hike. And while it will certainly climb further in the coming years, most Canadian economists predict that the Bank of Canada will choose to space out its rate hikes, to provide some relief for Canadian homeowners. That means another raise likely won’t happen until later in the summer. How does this affect the Canadian housing market? A higher overnight rate may further cool sales activity. So, the longer the wait until the next one, the more things will start to heat up. 

Things will balance out in the summer, but won’t return to record highs. While the housing market may warm up heading into the summer months, most industry watchers agree it’s unlikely to reach the record activity highs seen this time last year. New mortgage rules and a rising interest rate environment will likely keep things from heading skyward anytime soon.

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