Factors affecting the 2018 real estate market

This article reports some interesting data and breaks down a few factors that could impact the Canadian real estate market in 2018

Real estate can be a volatile industry with many factors affecting sales. No two places in Canada are the same when it comes to this ever-changing marketplace, and experts say business is becoming even more localized in the nation as 2018 marches on.

Although there will be challenges - as there are in any business sector - there will also be plenty of opportunities, especially in Alberta where the markets in Calgary and Edmonton appear to be on the rise. With a lower unemployment rate and more money in Albertans' pockets, real estate sales are likely to pick up moving forward this year. In fact, Canadian Real Estate Association (CREA) statistics show year-over-year gains in the western market - including Calgary and Edmonton - that indicate a definite recovery.

Newly imposed stress test could hinder some purchasers

Unfortunately, a federally imposed stress test that went into effect at the start of 2018 could make things much more difficult for many prospective purchasers. With this new rule, purchases with down payments that are less than 20 percent must qualify for a mortgage at Bank of Canada's five-year benchmark interest rate, which is substantially higher than the rate for which many of the individuals would have previously qualified. This could impact purchasing power significantly.

An inevitable rise in interest rates

Appealing interest rates have been the fuel for the real estate fire over the last few years, but that may be about to change. Interest rates for five-year mortgages have been climbing since the beginning of this year. The Canada Mortgage and Housing Corporation (CMHC) - which insures mortgage loans for purchasers with less than 20 percent down to protect lenders against mortgage defaults - predicts a steady rise in mortgage rates moving well into 2019.

CMHC predicts these interest rates will likely end up in the following ranges:

• Between 4.9-5.7 percent for a five-year mortgage in 2018

• Between 5.2-6.2 percent for a five-year mortgage in 2019

Average home prices remain on the rise

When looking at a year-over-year percentage, statistics show that home prices in Canada rose by 10.8 percent in the final quarter of 2017, putting the average single family home at $626,042. Breaking that down - the average price of a bungalow rose by a little over 7 percent to $522,963, while an average two-storey home price rose by a little more than 11 percent to $741,924. Condo living continues to be increasing in popularity with a more than a 14 percent increase in year-over-year price to a median price of $420,823.

Where to turn for assistance

The real estate industry may take many twists and turns due to being driven by the economy, but one thing that will always be consistent is the myriad of rules and regulations encountered by those involved. It may be an intimidating prospect for many to attempt to navigate the legalities involved with buying or selling any real estate property without proper support and guidance. Both vendors and purchasers could substantially benefit from the advice of an experienced lawyer who can carefully guide them through the entire process.