OTTAWA – Even though sales of existing homes, and their prices, continued to grow at a pace several times higher than the rate of inflation during September, the Canadian Real Estate Association is expressing fears new government regulations will actively discourage first-timer buyers from entering the market.
The realtors’ group said national home sales through its Multiple Listing Service (MLS) only gained 0.8% on a month-over-month basis in September while noting sales have eased in each of the previous four months and are not 5.6% below the record set in April 2016.
However, on an actual basis, sales climbed 4.2% year-over-year in September while the national average price climbed 9.5% from the levels seen in September 2015.
CREA also noted the number of local markets reporting increases was about evenly split with the number says the opposite – although in a continuation of trends seen over the past few months, sales climbed further in and around the Greater Toronto Area (GTA) while those in and around the Lower Mainland of British Columbia fell.
The decline in B.C. was attributed almost entirely to the new foreign buyer’s tax implemented in August by the provincial government in a bid to ratchet down fast rising asking prices. In fact, it maintains the situation in Greater Vancouver is responsible for the national slow down as well.
“The Finance Minister’s recent changes to regulations affecting mortgage lending has added to housing market uncertainty among buyers and sellers,” CREA president Cliff Iverson said in a statement. “For first-time home buyers, the stress test for those who need mortgage default insurance will cause them to rethink how much home they can afford to buy.”
“First-time home buyers, particularly in housing markets with a lack of affordable inventory of single family homes, may be priced out of the market by the new regulations that take effect on October 17,” CREA chief economist Gregory Klump continued. “First-time home buyers support a cascade of other homes changing hands, making them the linchpin of the housing market. The federal government will no doubt want to monitor the effect of new regulations on the many varied housing markets across Canada and on the economy, particularly given the uncertain outlook for other private sector engines of economic growth.”
Actual sales activity was up 4.2% year-over-year in September as transactions were up in almost two-thirds of all Canadian markets led by the GTA and environs, the increase was held in check by the drop in activity in B.C.’s Lower Mainland.
The number of newly listed homes inched up by 0.5% in September 2016 compared to August. As with sales, the number of markets where new listings were up on a month-over-month basis were evenly split with those where they fell.
With a sales-to-listings ratio of 62.1%, September’s was considered a sellers’ market – particularly in B.C., the G.T.A. and southwestern Ontario.
CREA also prices rose in nine of the 11 markets it actively tracks with the largest gains being recorded in B.C. Double digit gains were also seen in the G.T.A. and on Vancouver Island while prices fell in Calgary. Modest gains were made in the rest of the country.
The actual national price for homes sold in September was $474,590 – a year-over-gain of 9.5%. It continues to be pulled upwards by sales activity in both B.C. (mainly Greater Vancouver) and the G.T.A. – removing those hotspots from the calculation drops the average price to $358,884.
In her commentary, Diana Petramala of TD Economics noted the excesses seen Greater Vancouver Market have begun to unwind and activity “is returning to more normal levels, following a year of excessive growth.” She also wonders if this foreign buying frenzy hasn’t simply shifted east to Toronto, with record immigration and strong growth in the numbers of first time buyers.
“The fundamental factors supporting housing activity appear stronger in Toronto than Vancouver – helping drive existing home sales and prices up,” she remarked. “Having said that, the sales-to-population ratio in Toronto has risen sharply recently, suggesting that foreign investment and speculation are playing a part, albeit likely smaller than in Vancouver.”
She also believes the new mortgage and tax rules enacted by the federal government recently should take some of the stream out of the market through 2017. “This is the sixth time in eight years that the government has tightened mortgage regulation, and in each event, sales have fallen between 6% and 14% in the following three to six months,” Petramala pointed out. “The difference this time around is that the rules are more broadly targeted at insured borrowers (raising the bar on income testing), lenders (restricting the use of portfolio insurance) and foreign investors and speculators (increasing oversight of capital gain taxes on real estate and restricting non-residents from taking advantage of the principal residence exemption).
“As such, we expect that the regulations will shave as much as 10% off of existing home sales and up to 1% off of home prices next year,” she added. “The impact is expected to be more pronounced in Toronto where activity is starting to look a little frothy but should be spread across the country.”