Rough year predicted for new homebuyers

Some recent reports and projections for 2018 are forecasting a challenging year ahead for Manitobans who are looking to build or buy a new home.  New mortgage rules, a projected decline in housing starts for 2018, and rising costs could put the squeeze on potential new home buyers and raise home prices at an even higher rate here in Manitoba.

Royal LePage’s most recent House Price Survey report indicated that the aggregate selling price of a home in Winnipeg jumped 5.5 per cent, up to $305,413, between the third quarter of 2016 to the third quarter of 2017.  The report suggests that strong local demand combined with a shrinking inventory of available homes has driven the increase in the aggregate prices of a home.  The report also mentioned that new home buyers are also needing to factor in two interest rate increases and an enhanced mortgage “stress test” when budgeting for a new home purchase. As well, Statistics Canada’s New Housing Price Index for August 2017 reported that the price of a new home has increased by 3.6 per cent when compared to last August. 

Earlier this month, the Office of the Superintendent of Financial Institutions, Canada’s banking regulator, announced that new rules will be introduced on January 1, 2018 that will introduce a new minimum qualifying rate – or “stress test” – to all homebuyers, including those that have down payments of 20 per cent or more.  Previously, this stress test only applied to mortgages with lower down payments and those with a term of less than 5 years.  The rules effectively reduce the size of the mortgage Canadians will be able to take on given a certain down payment and income.  According to TD economists, these new rules will likely cause a further slowdown in housing activity in 2018.

The Conference Board of Canada’s Autumn 2017 Metropolitan Outlook report is projecting that Winnipeg’s economy will “lose steam” next year, with a key reason for that projection being a decline in housing starts.  Desjardins latest economic indicators report also projects housing starts for Manitoba in 2018 to decline by 500 starts compared to 2017.  This will have a negative impact for the local residential construction industry and will also be felt by Manitoba’s financial, insurance, and real estate industries as well.  On the positive side, the Conference Board of Canada’s outlook does suggest employment in Manitoba will continue to be strong. 

These reports suggest that while Winnipeg will continue to have strong demand for housing in 2018, the new home building market is expected to cool in 2018.  A decline in housing starts will mean a further shrinking of available new housing stock in Manitoba.  At the same time, new mortgage rules may mean some home buyers will have to opt for less expense housing options. As a result, some Manitoba home buyers may have fewer housing options available to them while housing prices will continue to rise in 2018.