female homebuyer shakes hand with real estate agent in office

Canada’s housing market is expected to continue cooling off over the next couple of years, according to a new report from Fitch Ratings.

On a national basis, housing prices likely grew by only about 3% in 2018, the rating agency reports. It notes that this slow growth follows several years of double-digit price appreciation. And it sees growth slowing further to just 0.5% over the next couple of years, amid tougher lending rules and rising interest rates.

Against this backdrop, Fitch also says that mortgage growth is expected to slow to just 1%- 2% from 5%-6%. It also sees mortgage arrears ticking up to 0.3% by the end of 2019, from 0.25% in 2018.

The forecast trend for Canada mirrors what’s going on at the global level. Fitch predicts that more countries will face challenges to home price growth in 2019 due to “high household debt levels, political risk, slowing economic growth and stretched borrower affordability.”

Fitch also says that the housing markets in Vancouver and Toronto remain vulnerable to a more severe price correction, as price gains have outstripped the underlying fundamentals over the past few years.