Higher wages among Ontarians contributing to relative market stability
The Ontario real estate market has experienced a noticeable decline in value over the past few months, but the Canada Mortgage and Housing Corporation argued in its latest analysis that a serious correction is less likely due to a combination of increased employment and income figures, reduced overvaluation, and modest interest rate growth.
In the June 2018 edition of its Housing Market Insight report, the CMHC stated that improving salary conditions in the province along with relatively moderate growth in interest rates are among the most important factors in keeping Ontario away from a housing bust.
“Wages have begun to respond to tight labour markets with growth in Ontario average weekly earnings more than doubling between the third and fourth quarter of 2017,” the CMHC noted in its study. “Indeed, the spread between long and short term interest rates which measures the speed at which monetary policy is tightening and the resulting impact on growth expectations, points to continued economic growth and less risk to home prices.”
“In addition, new households created have outpaced the increase in the housing stock – adding further support to the level of home prices as new supply is not keeping pace with new demand. Ontario consumer sentiment and expectations further lend support to home prices.”
Amid the decline in prices, overvaluation has also eased in concert with “an improving economic and demographic backdrop through 2017.”
“While we expect economic growth in Ontario to slow in 2018 and 2019, employment and incomes will continue to grow supporting Ontario housing prices,” CMHC explained. “inflation adjusted home prices in the province of Ontario should remain relatively stable and close to fourth quarter 2017 levels. Put another way, nominal home prices should grow in line with the general rate of inflation over the 2018/19 period.”
“This is good news for prospective buyers as fewer bidding wars will result in less urgency to act. For homeowners and investors it means home price expectations will need to normalize,” the report noted. “The current home price correction in Ontario will likely not persist as it fails to resemble the more serious downturns observed across time.”