2018 has seen a serious cooling of the Canadian housing market so far, as national sales fell for two consecutive months in January and February. But according to one organization, things are unlikely to improve in the coming months.

National sales activity is forecasted to decline another 7.1% in 2018, according to the latest forecast from the Canadian Real Estate Association (CREA).

“The decline reflects weaker sales in BC and Ontario, amid heightened housing market uncertainty caused by provincial policy measures, high home prices, ongoing supply shortages and tightening mortgage stress tests as interest rates rise,” reads the forecast.

According to CREA, the adjusted forecast comes as a result of markets continuing to face policy-related headwinds.

“When CREA previously published its forecast in December 2017, housing markets were being affected by provincial policy measures in BC and Ontario, and by the stress test on mortgage applications,” reads the forecast. “Rising interest rates and the announcement [of the stress test for uninsured buyers] were also factors.”

Since then, the BC government has announced further provincial housing policy measures, and the Bank of Canada has hiked the overnight rate to 1.25%.

“Interest rates are widely expected to rise further this year,” reads the report. “Higher interest rates make mortgage stress tests a more difficult hurdle for homebuyers that need mortgage financing.”

Nevertheless, CREA predicts that sales will pick up in the second half of the year, as the market begins to adjust to the policy changes.

“Some homebuyers will likely stay on the sidelines ….. and continue saving a large down payment before purchasing, resulting in lower sales in the first half of 2018 followed by a modest rebound in the second half of the year as uncertainty fades,” reads the forecast.

The national average price of a home is expected to fall 2.3% year-over-year to $498,100.

“The decline in national average price reflects fewer transactions in BC and Ontario; by the same token, price declines in these provinces reflect fewer sales of higher-priced homes in Vancouver and Toronto,” reads the forecast.

But prices in other markets — including Eastern Ontario, Quebec, New Brunswick, Nova Scotia and PEI — are expected to rise.

“Meanwhile, for the fourth consecutive year, home prices are forecast to be little changed in Alberta,” reads the forecast.

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