OTTAWA – The existing home market contracted slightly on a month-over-basis in January while the actual number of units changing hands climbed 1.9% of the first month of 2016, according to the latest data from the Canadian Real Estate Association (CREA).
The realtors’ group attributed the 1.3% monthly drop – which it also said put sales at their second lowest monthly level since the fall of 2015 – to the recent tightening of mortgage regulations by the federal government this past November. Sales fell in January over December in about half of all local markets, led by Canada’s three largest urban centres: The Greater Toronto Area (GTA), Vancouver and Montreal.
Actual sales activity was 1.9% year-over-year with gains recorded on two-thirds of local housing markets including the GTA, Calgary, Edmonton, London and St Thomas as well as Montreal. Offsetting this were significant declines in the Lower Mainland of British Columbia.
“Canadian homebuyers face some challenges this year, including new mortgage rules that make it harder to qualify for a mortgage and regulatory changes that will push up mortgage financing costs,” CREA president Cliff Iverson said in a statement. “It will take some time to gauge the extent to which these challenges will weigh on home buyers in different housing markets across Canada.”
“The shortage of homes available for sale has become more severe in some cities, particularly in and around Toronto and in parts of B.C.,” CREA chief economist Gregory Klump added. “Unless sales activity drops dramatically, the outlook for home prices remains strong in places that face a continuing supply shortage.”
CREA also reported the number of new listing fell 6.7% in January, the second consecutive monthly decline. New listings were down in about two-thirds of all local markets, led by the GTA and environs across Vancouver Island.
With the decline in new listings surpassing the decline in sales, CREA’s national sales-to-new listings ratio jumped to 67.7% in January – compared to 64.0% in December and 60.2% in November. A ratio between 40 and 60 is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively.
The ratio was above 60% in about half of all local markets in January, most of which are located in British Columbia, in and around the GTA and across southwestern Ontario.
The actual national average price for homes sold in January 2017 was $470,253 – essentially unchanged (+0.2%) from where it stood one year earlier.
However, removing Greater Vancouver and Greater Toronto from the calculation reduces the average price to $351,998.
“Despite January’s decline in activity, Canadian existing home sales are still well above their long-run average, underscoring our view that tighter mortgage regulations may temper housing demand in 2017, but are unlikely to derail it,” Diana Petramala of TD Economics said in her research note.
“Overall, the biggest factor expected to cool housing demand in 2017 will be higher mortgage rates,” she added, pointing out they have gone up 30 basis points since October 2016. “Combined with deteriorating affordability as home prices rise at more than four times income growth, the higher borrowing costs will start to bite into demand.”
TD Economics believes sales will fall 3% in 2017 and another 4% in 2018 as higher mortgage rates take hold. The other factor in play is the lack of supply. This may cause price growth to slow, but it probably won’t cool as much as anticipated, especially in Ontario and British Columbia, where shortages are particularly evident.