Published Nov 15, 2012 by Reuters and Financial Post
It looks at this point like the elusive soft landing is taking shape
Sales of existing homes in Canada fell in October from September and year-over-year sales were down as well, the Canadian Real Estate Association said on Thursday in the latest signal that the housing market is slowing.
The industry group for Canadian real estate agents said sales were down 0.1% in October from September. Actual sales for October, not seasonally adjusted, were down 0.8% from a year earlier.
The housing market, which roared higher in 2011 and the first half of 2012, started to slow after the government tightened rules on mortgage lending in July in a bid to cool the market and prevent home buyers from taking on too much debt.
“Housing market trends in Canada for 2012 can be characterized as before and after regulatory changes,” TD Economics senior economist Sonya Gulati said in a research note.
“In the first half of the year, sales and price gains were modest, but positive. More stringent mortgage rules and tighter mortgage underwriting rules have ’purposely’ knocked the wind out of the housing market sails,” she said.
Despite the decline, Robert Kavcic, an economist with BMO Capital Markets, said overall “it looks at this point like the elusive soft landing is taking shape.”
However, across the country there are clear pockets of strength and weakness. Here’s BMO’s local housing market scorecard:
“Vancouver: Seller be-aware… There’s little doubt that Vancouver faces some of Canada’s least favourable market conditions, with the sales-to-new listings ratio averaging less than 39% in the latest 3 months, near the lowest since the financial crisis. Sales have plunged 27% y/y in the latest 3 months, while the MLS Home Price Index was below year-ago levels in October. Prices have slipped almost 3% in the last 6 months. Despite softer prices, they remain about 10x estimated family income, by far the loftiest valuations in Canada.
Calgary: Back in the saddle… Strong population and income growth are supporting demand, with sales up almost 20% y/y in the latest 3 months. This has helped draw down the excess supply built up during the prior boom—the market is now close to full-scale sellers’ territory. As a result, prices measured by the MLS HPI were up a solid 6.7% y/y in October, though affordability is still favourable relative to Toronto and Vancouver, with prices little more than 4x median income.
Toronto: Condos cooling… Activity has softened significantly since mortgage rules were tightened in early July, leaving sales down 16% y/y in the past 3 months. While the market is still technically balanced by our definition, it is now leaning distinctly in favour of buyers. That said, MLS index prices were still up a solid 5%y/y in October, but a stark divide remains between scarce detached homes (+6.5% y/y) and more amply-supplied condos (+1.1% y/y, but down 1.2% since June). Note that some cities in Southwestern Ontario are seeing sellers’ markets amid a dearth of supply (even as sales sag).
Atlantic Canada: Mixed… New Brunswick faces stiff economic headwinds, and the Saint John market remains decidedly in buyers’ territory. Meantime, the Halifax market, while softening somewhat in recent months, remains relatively healthy amid optimism over the Federal shipbuilding contract.”
While tighter mortgage rules have worked to slow the market, TD’s Gulati said the big question is what will happen when that temporary cooling effect wears off in early 2013.
“What happens thereafter is less certain. The low interest rate environment could pull homeowners back onto the market, causing home prices to once again trek upwards. Alternatively, an absence of pent-up demand may leave the market in a bit of a lull until interest rate hikes resume in late 2013,” she wrote.
“Under either scenario, it is safe to say that there is a low probability of out-sized home price gains over the near-term.”
A total of 402,322 homes traded hands via Canadian MLS systems over the first 10 months of 2012, up 0.8% from the same period last year and 0.4% below the 10-year average for the period, the data showed.
The number of newly listed homes fell 3.8% in October following a jump in September. Monthly declines were reported in almost two-thirds of local markets, with Toronto and Vancouver exerting a large influence on the national trend.
Nationally, there were 6.5 months of inventory at the end of October, little changed from the reading of 6.4 months at the end of September.