To a backdrop of increasing interest rates and more expensive listings in some hot markets, Canadian home sales will drop in 2017 after a possible record-setting performance this year, forecasts Canada’s national housing agency.

In Canada Mortgage and Housing Corporation (CMHC)’s latest Housing Market Outlook, the Crown agency predicts the number of homes changing hands through multiple listing service (MLS) systems across Canada in 2016 will fall somewhere in the range of 501,700 and 525,400 units.

The current record for home resales in a single year is 521,804 units, a total reached in 2007, meaning the high-end of CMHC’s predicted range would top that number. However, by the end of 2017, CMHC predicts annual sales between 485,500 and 508,400 units.

“Although MLS sales started 2016 strongly and are expected to increase in 2016 (relative to levels observed in 2015), they are expected to decline in 2017 on an annual basis,” says CMHC.

“The increase in the first quarter of 2016 was almost entirely driven by sales in British Columbia, but those sales are expected to slow, mainly because of a lack of listings,” it continues in the report, which highlights several trends that have an impact on the housing market.

Two factors CMHC says influence housing market performances — Canada’s real GDP and employment — are expected to ramp up through 2017. However, eroding affordability may take a toll on sales activity.

“Despite the improving picture for employment and earnings outlined above, historically strong price growth in some major CMAs could curtail demand growth,” notes CMHC.

The national housing agency projects the average price range of homes sold via MLS systems across the country to continue increasing from between $474,200 and $495,800 this year to within the range of $479,300 and $501,100 in 2017.

“Average MLS home prices in British Columbia and Ontario are expected to continue to outpace the national average throughout the projection horizon, while average prices in Alberta are expected to fall below the national average,” says CMHC.

“By 2017, demand for existing units is expected to moderate relative to 2015 and 2016, as the ratio of resales to the number of households is historically high,” it notes.

Meanwhile, the Crown corporation predicts mortgage rates will creep up putting further downward pressure on resale activity. This is generally in line with at least one major bank’s forecast.

Outlining its “base case scenario,” CMHC says five-year mortgage rates will be in the range of 4.4 and 5 per cent this year, before increasing to a higher range of 4.7 to 5.3 per cent in 2017.

Canadian Home Sales to Fall Next Year After Potentially Record-Setting 2016 by Josh Sherman | Buzz Buzz Home