Canadian home sales cool but prices continue to rise

Canadian home sales were down on a month-over-month basis in November 2016, while prices in most markets continued to rise, according to statistics from The Canadian Real Estate Association (CREA).

The number of homes trading hands via Canadian MLS Systems declined 5.3 per cent month-over-month in November 2016. This represents the largest monthly decline in activity since August 2012. Activity was down in about two-thirds of all local markets, including Canada’s most active markets.

“November was the first full month in which the expanded stress-test was in effect for homebuyers with less than a 20 per cent down payment,” says CREA President Cliff Iverson. “The government’s newly tightened mortgage regulations have dampened a wide swath of housing markets, including places not targeted directly by the government’s latest regulatory measures. The extent to which they pushed first-time home buyers to the sidelines varies among housing markets.”

Growing uncertainty

“Canadian housing market results for November suggest that Canada’s housing sector is unlikely to be as strong a source for economic growth as compared to before mortgage regulations were recently tightened,” adds Gregory Klump, CREA’s chief economist. “Housing activity generates a lot of spin-off spending, which makes its weakened prospects an additional source of uncertainty as regards the outlooks for Canadian economic and job growth.”

Home sales held 1.6 per cent above where it stood in November 2015 – the smallest year-over-year increase since October 2015.

The number of newly listed homes edged down 0.4 per cent in November 2016 compared to October. New listings were up from the previous month in almost half of all local markets, led by the GTA but offset by declines in BC’s Lower Mainland.

The tight balance between housing supply and demand in Ontario’s Greater Golden Horseshoe region (GTA, Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, Niagara Region, Barrie and nearby cottage country) is unprecedented. In November, the number of months of inventory ranged between one and two months in many of these housing markets, and stood below one month in the Durham Region, Orangeville, Oakville-Milton, Kitchener-Waterloo and Cambridge.

Benchmark prices for two-storey single-family homes and townhomes posted the largest year-over-year gains in November 2016, at 16.3 per cent and 16 per cent, respectively). Prices for one-storey single-family homes increased 13.7 per cent and condos 11.5 per cent.

The Fraser Valley (29.7 per cent) posted the largest year-over-year gain in November, while Greater Vancouver grew 20.5 per cent, Victoria 20.6 per cent and the GTA 20.3 per cent. Vancouver Island also registered a double-digit increase in home prices at 16.8 per cent.

Meanwhile, home prices posted year-over-year gains of 5.4 per cent in Regina, 3.4 per cent in Ottawa, 3.1 per cent in Greater Montreal and 3.5 per cent in Greater Moncton.

The national average price for homes sold in November 2016 rose 7.3 per cent year-over-year to $489,591. Excluding Vancouver and Toronto from the calculations, the national average price is is reduced by almost $130,000 to $361,260.

CREA also revised is forecast for 2016, projecting national sales activity will 6.2 for the year, up slightly from its previously forecast increase of six per cent. The forecast for sales activity was revised upward for Ontario and downward for British Columbia.

BoC warning

CREA’s statistics were released on the same day as the Bank of Canada’s Financial System Review, in which BoC raised concerns about levels of Canadian household debt.

Since June, the proportion of highly indebted households has continued to rise in many cities, notably in the GTA. Nationally, house prices continue to increase relative to income, although significant regional divergences persist. Imbalances in some regional housing markets make it more likely that adverse economic shocks could cause large declines in prices, the Bank says.

This buildup of vulnerabilities will be mitigated over time by new federal housing finance rules and other housing sector policies, which will dampen activity in the sector and improve the quality of new mortgages. While the impact of these measures will be concentrated in regions where house prices are the highest relative to income, such as Vancouver, Toronto and Calgary, they will also have important effects at a national level, BoC says.

“These macroprudential policies will raise the underlying quality of household indebtedness over time, as well as financial institutions’ capital requirements and pricing criteria, which will make them more resilient to future shocks,” says Governor Stephen S. Poloz. “Accordingly, these policies will help mitigate financial stability risks over time.”

The most important risk remains household financial stress and a sharp correction in house prices, triggered by a large and persistent nationwide rise in unemployment, the Bank says. The likelihood of this risk materializing, however, remains low.

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