Although, the number of sales in 2018 was down 5.6 per cent, a little below the 10-year average, and the total dollar volume of $3.77 billion was also down 3.8 per cent. But only the uninformed would suggest it’s a sign there is something wrong with the Winnipeg housing market.
Average prices in Winnipeg have risen every year, albeit modestly, since 1995 and were up again last year by two per cent.
Compared with the rest of the country, Winnipeg continues to be one of the most affordable housing markets in Canada. With the average Winnipeg home price of $321,259, Quebec City is the only comparably sized city in the country that comes close. You would need to double your Winnipeg income just to afford a house in the Hamilton market.
Not only that, but 2017 just happened to be Winnipeg’s best year on record. And another thing: regulations to cool down the market, mostly targeting the overheated markets in Toronto and Vancouver, were likely the biggest culprit in the step back the Winnipeg home sales market experienced last year.
At its annual forecast event last week, Winnipeg Realtors market analyst Peter Squire characterized the statistical decline this way: “It was a policy-induced retraction. It was not because of the economy... In my view, it was what happened to make it more difficult for buyers to enter the market.”
“What happened” was the federal government imposed a stepped-up stress test on top of the first one that came into effect the year before.
The Office of Financial Institutions rule that took effect Jan. 1, 2018, requires mortgage applicants to show they can afford mortgage payments that are two percentage points higher than the rate they have negotiated with their mortgage providers.
That followed the stress test from the fall of 2016 that was only imposed on insured mortgages — those where the buyer put down less than 20 per cent of the purchase price. But starting in 2018, all homebuyers had to show the same financial capacity, and that meant some people were not able to buy the house they wanted.
In 2017, total sales of residential detached homes — which make up about three-quarters of the total listings in Winnipeg — represented 64 per cent of the total listings. In 2018, it was down to 60 per cent.
Squire paints a picture of how it was the first-time buyers who had a much harder time getting into the market last year that caused the temporary decline in sales volume because of the stress test.
The fact that the upper-end market was a little better than 2016 and 2017 shows that the higher end of the market was hardly affected by the more strenuous mortgage regulations. Those buyers could pass the stress test.
In 2018, there were 43 houses that sold for $1 million or more versus 45 in 2017, 30 in 2016 and 23 in 2015.
“What was so telling to me,” Squire said, “is how we actually had essentially identical sales in 2018 compared to 2017 in residential detached houses over $300,000, so that reinforces to me that millennials and first-time buyers are having that much more of a difficult time closing.”
Squire and Winnipeg Realtors president Kenneth Clark believe a strong January performance, with sales up 11 per cent compared with the first month of last year, is a good start to a year. Winnipeg Realtors is forecasting a growth in sales volume of up to three per cent as well as two per cent in price and total dollar volume this year.
“This is the best start on record for January in our local real estate market,” Clark said. “However, as they say, one month does not make a year, so we remain cautiously optimistic.”
The stress test will still be a factor this year, although Squire said there are rumours there might be some modification heading into the federal election in October.
“But given our affordability... and a year to adapt to see what a buyer can actually afford (now that people realize they have to show they can afford to pay their mortgage if rates go up two full percentage points), I am cautiously optimistic that some of that might translate to some recovery,” Squire said.
In the meantime, the reality of the Winnipeg market is that it takes about 28 months to save for a down payment on a home compared with 28 years in Vancouver.
Squire’s message to the national market is: “Move to Winnipeg if you want to own a home. That’s my advice.”