Housing Market Outlook

November 6, 2017 Market

Source: Canada Mortgage and Housing Corporation

New home market: multi-unit housing construction to stay strong until 2019

Supported by rental and condominium housing construction, starts in the Montréal CMA will be on a slight upward trend until 2019, ranging between 19,000 and 22,000 units in 2018 and between 19,000 and 23,000 units in 2019.

Because of the increase in rental and condominium housing construction, starts in Montreal will be on a slight upward trend until 2019.

On the rental market, builders will continue to focus on seniors’ housing construction, given the aging of the population. As well, conventional rental housing starts will remain at high levels over the next two years. A portion of these projects will, in fact, be seeking to attract baby boomer clients, some of whom are effectively reaching a time in their life where they may decide to sell their property and change housing tenures.

In the condominium segment, construction will increase thanks to a strong demand, which will be supported by employment growth, and also to significantly lower inventories of new and existing condominiums on the market.

As for new single-detached houses, the tighter conditions on the existing single-family home market will lead to an increase in starts. However, the potential for construction will remain limited, particularly on account of constraints related to urban densification.

Existing home market: market conditions to tighten from now until 2019

Resale market transactions in Montréal will also be on an upward trend from 2017 to 2019. The surge in demand will result mainly from the expected growth in full-time employment among people aged 25 to 44, a group that accounts for a large proportion of the homebuyer pool. However, the anticipated rise in mortgage rates will limit this increase over the forecast horizon.

Rising demand, combined with declining supply, will cause market conditions to tighten again and become increasingly favourable to sellers. Consequently, the growth in the average price of homes over the forecast horizon should be definitely higher than the annual average of the last few years6, which was about 2.5%.

Rising demand will create a seller’s market, and we will see the average price of homes increase compared to the last few years.

Market conditions will, however, vary depending on the market segments. The single-family home and plex markets should remain very favourable to sellers from now until 2019, which will increase the upward pressure on prices for these types of homes, while the condominium market will be on the fence between a balanced market and a sellers’ market over that period.

Vacancy rate to rise slightly from now until 2019

From 2017 to 2019, with rental housing supply outpacing demand, the vacancy rate in the Montréal CMA will rise slightly each year, reaching 4.4% in 2019.

Demand will be supported by slightly higher net migration over the forecast horizon—a level that could be revised upwards depending on the refugee situation in Montréal. However, demand for conventional rental units will be curbed by competition from rental condominiums.

As for supply, some 4,000 new apartments will be added to the rental housing stock annually until 2019, or about twice as many as in 2016. These high levels will result from the large numbers of conventional rental housing starts over that period.

Montréal’s strong economy to support housing demand

Economic activity in Quebec has shown stronger-than-expected growth since the beginning of 2017 thanks to an overall high domestic demand. Over the coming years, the Montréal area economy will continue to be stimulated by current and upcoming major infrastructure projects, such as the Réseau électrique métropolitain (REM).

The strength of Montréal’s economy has also been reflected in the significant growth of the job market in recent quarters, particularly observed in full-time employment among people aged 25 to 44. Total employment in the CMA will post a gain of 3.7% in 2017 and will continue to grow in 2018 and 2019, albeit at a slower pace.

After recording a strong increase in 2016, net migration in the CMA will continue to rise slightly from now until 2019. This growth will be fuelled mainly by immigrants arriving in Montréal and, to a lesser extent, by a smaller interprovincial deficit resulting from the current appeal of the labour market.

Table of Employment rates in Montreal between 2008 and 2019

Forecast risks

Housing demand could be stronger than anticipated if employment growth is higher than our forecast scenario. For example, the REM project could have a significant positive impact on Montréal’s economy but, at this time, it is difficult to say when exactly this impact will occur.

Other factors could also have an impact on housing demand, but a negative one, including a greater-than-expected rise in mortgage interest rates. Also, the uncertainty with regard to possible changes to the terms of trade with the United States could affect exports and limit economic growth more significantly.