Home prices will continue to rise in 2016

The Canadian Real Estate Association has updated its forecast for home sales activity.

When CREA published its previous forecast in March, a rush of homeowners in Alberta had listed their property for sale. But since then, new supply has pulled back sharply. Still, CREA’s forecast is for continued gradual improvement in home sales, as well as housing market conditions in oil-producing provinces.

While oil prices have firmed up recently, says CREA, they remain sluggish compared to where they were a year ago. So, the extent to which lower oil prices will continue to weigh on the Canadian economy remains uncertain.

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In the Prairie region specifically, low oil prices are dampening consumer confidence and sidelining potential homebuyers.

Home sales elsewhere in Canada are continuing to evolve as expected, with the exception of a slower-than-expected spring market in Nova Scotia—that’s due to extraordinarily inclement weather and strong sales across much of British Columbia.

However, low-rise property markets remain tight in parts of British Columbia and Ontario. To date, these are the only two provinces where a shortage of listings for low-rise homes is expected to fuel average price gains above inflation.

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In other provinces, listings for low-rise homes have begun to decline but they remain elevated so far. As a result, average prices across the Prairies, Quebec and the Atlantic region are unlikely to see much in the way of price growth over the forecast horizon as sales gradually deplete listings.

Meanwhile, the forecast for national sales in 2015 has been revised upward, reflecting stronger than anticipated activity in British Columbia; national sales are now projected to rise by 1.3% to 487,200 units in 2015, which is slightly above its 10-year annual average.

The forecast for national average home price growth has been revised upward to $429,400, for an annual increase of 5.2% in 2015. This reflects forecast average price gains in British Columbia and Ontario, together with a projected increase in their proportion of national sales.

Read: Provincial housing markets may diverge, says CMHC

British Columbia is expected to be the only province where average price rises faster (8.5%) than the national average, while the rise in Ontario’s average price (5.6%) is going to be roughly in line with the national increase.

Looking ahead

In 2016, national sales activity is forecast to reach 492,100 units, a further annual gain of 1%. The increase reflects an anticipated rise in sales activity in Alberta and Saskatchewan, which is in line with a gradual improvement in their economic outlooks.

And, although sales in British Columbia are expected to remain strong in 2016, it’s the only province where they are forecast to moderate (-2.9%) due to stretched affordability.

At the same time, strengthening economic prospects should translate into slow and steady gains in other provinces, where home sales have struggled in recent years while prices remained more affordable due to an elevated supply of listings.

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The national average price is forecast to rise by a further 1.6% (to $436,400 in 2016). That rise will be more significant in British Columbia, Alberta, Manitoba, and Ontario, with price growth expected to be strongest in Ontario (+2.6%) due to an ongoing supply shortage of listings for low-rise homes.

On the West coast, an improvement in the share of higher-priced sales activity is anticipated to boost average prices in Alberta (+2.4%).