Calgary Real Estate had a slow start in 2019, and that’s no surprise to anyone. With 2018 home prices remaining weak, slowed sales and increased inventory, no one expected 2019 to start with a bang.

For those that were at the CREB Forecast last week, the gist I got was that we can expect a similar year to 2018. The first half could be even slower with some potential of a slightly stronger, or perhaps just more stable, second half of the year.

I don’t know about you, but I, for one, could handle some stability!

Calgary Real Estate 2019

The labour market in the province is expected to remain tenuous. We saw positive net migration in 2018, and that should continue in 2019. It won’t be enough, however, to move the demand needle substantially.

According to a recent article in MBN, “while notable declines in oil prices and cross-border trade wars represent considerable threats, market observers have warned of an impending recession next year – but Bank of Canada governor Stephen Poloz stated that 2019 might not be the catastrophe that everybody fears, considering that “fundamentals are good.””

And, despite the continued struggles in manufacturing, “Even in this period of subdued growth in the energy sector, it’s still a major contributor to Canada’s economy and a major contributor to the well-being of households across the country,” according to David Doyle, Macquarie Group’s Canadian market strategist and NA economist.

I take from this that, at best, we can expect Calgary Real Estate to hold steady in 2019. Could be worse, right?

Annual State of the Residential Mortgage Market – 2018

Each year, Mortgage Professionals Canada releases in-depth consumer reports, providing a better understanding of Canada’s housing market. The 2018 Year End report has now been released. Here are some of the keys that struck me as I read it – yes, all 84 pages of it!

The first is the impact of the stress test introduced in January 2018. Nationally, sales dropped 11% in 2018 as compared to 2017, and 15% as compared to 2016. Much larger an impact than was forecast. Remember though, there were a lot of other changes that softened the markets in both Toronto and Vancouver. These were likely a contributing factor to these national sales numbers.

The stress test is also having a big impact on those mortgages coming up for renewal. By fall 2019, the forecast is that as many as 200,000 mortgage borrowers will be “trapped” with their existing lender because they cannot qualify under the new stress test to move to a new lender.

Second, nationally the housing market is depressed. Housing starts and the resale market are all trending downwards. This will have an impact on jobs and consumer confidence, and will likely be a theme continued in 2019. This will have a compounding effect on the economy.

Mortgage Professionals Canada, among other organizations, is arguing for changes to the stress tests. Some of these include:

  • Using the correct interest rate (to take account of income growth and principal repayment)
  • On renewal, borrowers should not be subject to stress tests, so long as they are current on their payments (to prevent “capture” by their current lenders)
  • Also, related to a later discussion about private lending; federal policies have made it much more difficult for mortgage borrowers with small, alternative lenders to transfer to more liquid, lower-cost lenders. That needs to be fixed

“So, the key federal concern ought to be about employment and income security, and ensuring that mortgage regulations allow for reasonable and optimal solutions when borrowers suffer reduced incomes” the report reads. Currently they do not.

The organization is also advocating to bring back 30-year amortizations. “The current limit of 25-year amortization for insured mortgages results in a very high rate of “forced saving”. 30-year amortization periods would also result in rapid pay-down of mortgage principals and growth of homeowners’ equity positions.”

I’m proud to be a member of this National Association. They are advocating for the industry and for borrowers.

The report is abound with great data and consumer sentiment. Go to Mortgage Professionals Canada if you want to have a read of the entire report.

Interest Rates in 2019

Any change to what can we expect for interest rates in 2019? If you didn’t get a chance to read the forecast I published in January, you can check it out here.

So, has anything changed in a month?

We have seen rates come down since their record seven year high in Q3 2018. This is good news for those buying or those with imminent renewals.

The Bank of Canada is expecting our economy to slow through the first half of the year, and so far we’re seeing that manifest in interest rates. With the bond yield down, most lenders have dropped their fixed rates significantly.

The Bank of Canada also used the slower start to 2019 as a reason not to raise the key lending rate in its January 9th announcement. Poloz did say that he expects, over time, for the overnight rate to increase to a “neutral level” which he said is between 2.5%-3.5%, but he won’t know until we’re there.

This would translate into an increase of 0.75%-1.75% in the lenders’ Prime Rate. For now variable rate holders can breathe easy as we’re not expecting any increases in the short-term. Where previously the forecast was for three rate hikes in 2019, perhaps now we’re down to one.

As always, time will tell. I for one would like to see some economic recovery even if it means slightly higher interest rates.