Following the slump of activity in the first half of 2018, the Canadian real estate market is predicted to slowly heat up in the fall. It’s not certain, but if growth is going to happen, there are a few likely factors.

As we reported last month, analysts from major banks see an improvement in the market in the coming months. Recently more predictions have come through, emphasizing that after such low activity, there’s things may soon look up:

Canadian real estate investment is finally rising again, after first quarter slump

Home sales rose on a month-over-month basis in both June and July, causing several economists to predict that the market will continue to heat up heading into the fall.

“Looking ahead, a more ‘normal’ pace of growth should prevail,” writes TD senior economist Brian DePratto, in a recent note. “Housing activity seems to have bottomed, and so we expect residential investment to continue making a positive contribution, counterbalanced by disruptions in the energy sector.”

As for what this data means for a possible overnight rate hike, Porter predicts that the Bank of Canada will wait until October to raise rates further. The overnight rate affects mortgage rates, and was hiked to 1.50 per cent in July. Via livabl.com

Further along in the report, the analyst from BMO predicts an interest rate hike for next month, which could have major implications for the industry.

Beyond natural market trends, changing demographics are also set to play a part. A recent RE/MAX® survey explored what the generation born between the mid-90’s and the mid-2000’s thought of purchasing a home:

Nearly half of Gen Zers want to buy a home in the next few years

Though the thought of buying a home is stressful, 46% of Gen Zers who don’t currently own a home would like to buy in the next few years. In the GTA, only 42% are looking to buy in the next few years.

A whopping 38% of Gen Zers have “no desire” to own a home, while 50% admit that they have limited knowledge of the housing market and would like to learn more.

“Gen Zers are interested in learning more, and a greater effort needs to be made to educate them about the benefits and potential risks of homeownership,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “As Gen Z looks ahead, it’s important that they have a trusted team and good resources to turn to, to alleviate stress and empower them in the process to becoming first-time homebuyers in the future. While the survey showed interesting trends across two of the hottest markets, the Gen Zers we speak to are eager to become informed and excited about the future of homeownership.” Via blog.newinhomes.com

The real estate industry put great focus on millennials as they entered the market, and as a new generation, with their own preferences, does the same, housing trends could see big shifts.

People who own homes, on the other hand, are also doing their part to affect change in the market, albeit in a different way. More and more are taking out home lines of credit (HELOC), which, put simply, is a form of debt that allows homeowners to borrow equity in their home. Done right, it can be a good alternative to another mortgage, but things can go wrong:

Canada’s HELOC Problem Is One of The Biggest Risks For Real Estate

In Canada, HELOCs are often used to finance down payments on additional homes. There’s no shortage of advisors suggesting a HELOC to buy a second home. Parents also tend to borrow HELOCs, and “gift” the loan to children for use as a downpayment. Now 35% of first-time buyers in Toronto, and 40% in Vancouver, receive down payment help from their parents – quite a bit is likely HELOC cash. That means Canadians are using leverage, to get more leverage – and lenders may not be fully aware.

Canadian HELOC growth is slowing, but after seeing explosive growth last year. The balance of HELOCs reached $286.81 billion in Q2 2018, up 1.83% from the previous year. That’s down from last year, when growth peaked at a whopping 12% in Q2 2017. For context, peak real estate price growth occurred in the same quarter last year.

The growth rate of outstanding balances on home equity lines of credit (HELOC) and gross domestic product (GDP) in Canada. read more at betterdwelling.com

Indiscriminate use of HELOCs can lead to defaults on mortgages, which can lead to buyer’s markets becoming longer and deeper than less leveraged housing markets. As the report says, could become a major problem facing our industry and Canada’s economy more generally, should there be a significant external event like an oil price shock or a trade shock (see recent news about NAFTA).