Photo: Florian Christoph/Flickr

Although Calgary’s housing market is slowly recovering, home sales and prices will likely remain flat through 2019, thanks to stricter mortgage regulations and rising interest rates.

In the first quarter of 2018, overall home sales in the city fell 10 per cent on a seasonally-adjusted basis compared to the same period last year, according to a new report from Scotiabank Economics, published this week.

The slowdown in sales is largely attributed to a new stress test that was introduced by the Office of the Superintendent of Financial Institutions (OSFI) on January 1, 2018. The bank says the new regulations will likely keep the city’s market activity unchanged over the next year.

“Calgary’s housing recovery is ongoing, but home sales and prices will likely remain subdued through 2019. While demand fundamentals are improving, new mortgage stress tests and rising interest rates have introduced counterbalancing headwinds,” reads the report.

Throughout the past year, over 23,000 net new jobs have been created in Calgary and the city’s unemployment rate has fallen to around eight per cent.

Demographic trends have also become more favourable in the market, as Alberta witnessed a net inflow of migrants from other provinces in the latter half of 2017.

Recovering demand fundamentals combined with an affordable housing market is expected to help mitigate the impact of the stress test and rising rates on Calgary’s housing market.

“The impact is expected to be more muted than in Toronto and Vancouver given Calgary’s relatively better housing affordability and smaller share of uninsured mortgages,” says Scotiabank.

As for home prices, Scotiabank says they are stabilizing and will also be little changed through 2019. But, housing affordability is set to worsen slightly as households adjust to a rising interest rate environment.

“We anticipate some erosion in affordability in 2018–19 as rising interest rates boost mortgage payments at a faster pace than income growth, but not to the extent that it becomes a major issue for many households,” reads the report.

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