2020 Economic Outlook

Canadian housing market risks are localized and generally easing ■ Home resale activity is now recovering in most markets that corrected materially in the past 2-3 years. Resales were up 6.5% in Canada in 2019. A series of policy measures at the federal and provincial levels in B.C. and Ontario - including a new stress test for uninsured mortgages - along with earlier interest rate increases, caused home resales to decline back-to-back in Canada in 2017 and 2018 Demand-supply conditions have tightened nationally and in several local markets, including Toronto, where prices are now rising at an accelerating pace. Property values are generally on a modest upward trajectory in Canada, with the exception of Vancouver and oil- producing regions, where market conditions have been soft until very recently Solid population growth, household income gains and low unemployment rates limit the risk of any downward spiral ■ Poor housing affordability is being skewed at the national level by severe conditions in Vancouver and Toronto. Affordability is in line with historical norms in most other markets across Canada, though it has been deteriorating in Ottawa and Montreal ■ Canada's household debt service ratio has trended higher, but the drop in mortgage rates since early 2019 year will help stabilize it ■ Lenders maintaining strong underwriting discipline and require extensive documentation Most mortgages held on balance sheet and conservative lending policies have led to low delinquency rates Demand-supply conditions have tightened up Sales-to-New Listings Ratio (1) Debt service ratio expected to eventually stabilize Household Debt Service Costs (2) (Mortgage & non-mortgage principal & interest payments as a % of household disposable income) (Residential unit sales to new residential listings) 1.00 16 0.90 0.80 14 Seller's market 0.70 12 0.60 0.50 10 Balanced market 0.40 8 0.30 Buyer's market 0.20 6 0.10 0.00 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 4 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (1) Canadian Real Estate Association, RBC Economics. (2) Statistics Canada, RBC Economics. PDI: Personal Disposable Income. 39 | CANADIAN HOUSING MARKET RBC

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