Photo: James Bombales

Industry watchers are predicting a cooling Toronto housing market for the first few months of 2018, as new mortgage rules and the promise of rising interest rates take their toll. But one expert thinks there’s one corner of the residential market that could prove to be the exception.

“I think the market will start strong for [Toronto] pre-construction condos [in 2018],” Urbanation senior VP Shaun Hildebrand writes in an email statement to BuzzBuzzNews. “There is a lot of momentum being carried through from a record-breaking year for sales in 2017.”

Hildebrand believes the city’s inventory levels are still low enough to support further price gains in the first few months of the year. He’s also quick to point out that pre-construction home buyers won’t have to worry about the new mortgage stress test, which came into effect on January 1.

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“Pre-construction buyers were already being stress-tested prior to the new [mortgage] rules, [so] the new policy shouldn’t have much of a direct impact,” he writes.

Given the pre-construction condo market’s tight supply levels, Hildebrand predicts 3-4 per cent price growth in 2018 — a significant decrease from 2017’s startling 20 per cent, but still what he considers a healthy increase.

After a strong first few months, Hildebrand believes that the market may cool somewhat, as the effects of rising interest rates take their toll.

The Bank of Canada hiked the overnight rate by 50 basis points in 2017, up from a historically low 0.5 per cent, and is expected to continue raising it throughout 2018.

“Interest rates look to be one of the factors that will act as a headwind for the [pre-construction] condo market in 2018,” writes Hildebrand. “I expect activity to begin slowing down around mid-year. Prices will likely become too stretched for investors, who are a big driver of sales, and also just due to market fatigue after the industry has been running at full-tilt for two years.”

Hildebrand writes that, following a large number of new launches at the beginning of the year, pre-construction inventory levels should begin to normalize.

“[Then] price trends for new condos will begin to align with the flatter profile that has already emerged in the low-rise market,” he writes.

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