After years of continued attempts to rein in the housing market and engineer a soft landing across Canada’s hottest markets, policymakers have broadened their regulatory toolkit from federal macroprudential policies to include provincial and local regulation. This enabled a more targeted approach, which is more efficient given the highly bifurcated nature of the Canadian housing market, and has been effective at cooling prices in intended regions. Sales activity fell 4% last year, nationally, while price growth decelerated to 4% per year from a double-digit gain in the prior year. Looking ahead, downward pressure on housing should remain in place, with another round of regulatory tightening implemented this year while continuing increases in mortgage rates will further highlight affordability issues. These factors will depress sales activity and put downward pressure on prices until supply rebalances. Still, taken together, the tighter regulation and higher rates will act more like body-shots than knock-down punches, with the housing market likely to remain sturdy, supported by robust macroeconomic conditions.
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Updated B20 guidelines to weigh on, but not upend, sales activity
The first punch will come from regulators, with the Office of the Superintendent of Financial Institutions (OSFI) on January 1st, 2018 implementing updated mortgage underwriting procedures. Amongst the changes, the revised ‘stress test’ rule is the most impactful.