Canadian real estate market sees activity slow

Home sales across Canada edged up by 0.8% in September but are now 5.6% below the record set in April 2016, according to the latest index data.

Year on year sales were up by 4.2% and the average price of a home is up 9.5% compared to a year ago, the figures from the Canadian Real Estate Association reveal, but there are considerable regional variations.

The number of markets was evenly split between those where activity rose on a month on month basis and those where it declined. Continuing recent trends, sales climbed further in and around the Greater Toronto Area (GTA) and fell further in and around the Lower Mainland of British Columbia.

Overall the house price index is 14.4% higher than it was in September 2015 which is down from 14.7% recorded in August and the first deceleration since March 2015 and prices were up in nine out of 11 markets covered by the index.

The biggest price increase was 35% in the Fraser Valley, followed by 28.2% in Greater Vancouver, however, single family home prices in both of these markets dropped from the month before, marking the first significant decline since late 2012.

Double digit year on year price gains were also registered in Victoria with growth of 19.4%, in Greater Toronto prices were up by 18% and they were up by 13.9% in Vancouver Island.

By contrast, prices were down 4.1% year on year in Calgary where they have remained below year ago levels since August 2015 and are down 4.6% from the peak reached in January 2015. Prices were also down 1.2% in Saskatoon which have also been below year ago levels since August 2015.

The report also points out that national average price continues to be pulled upward by sales activity in Greater Vancouver and Greater Toronto, which remain two of Canada’s tightest, most active and expensive housing markets.

That said, Greater Vancouver’s share of national sales activity has diminished considerably of late, resulting in it having less upward influence on the national average price. Even so, the average price is reduced by more than $100,000 to $358,884 if Greater Vancouver and Greater Toronto sales are excluded from calculations.

The index report also points out that in Greater Vancouver and Fraser Valley home sales declined sharply for five months in a row before the new foreign buyers’ tax in Metro Vancouver was announced in August.

Activity has returned to more normal levels after having peaked at the start of this year. Indeed, most of the decline since the April peak in national sales reflects the rapid drop in activity in and around B.C.’s Lower Mainland, the report shows.

At the same time, recent changes to regulations affecting mortgage lending has added to housing market uncertainty among buyers and sellers, according to CREA president Cliff Iverson. ‘For first time buyers the stress test for those who need mortgage default insurance will cause them to rethink how much home they can afford to buy,’ he said.

CREA chief economist Gregory Klump believes that first time 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 this week (October 17).

‘First time 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,’ he explained.

The index also shows that the number of newly listed homes inched up by 0.5% month on month and, as with sales activity, the number of markets where new listings were up on a month on month basis and those where they fell was evenly split. With inventory in acutely short supply, the rise in new listings supported higher sales activity in the GTA and the national total.

With sales and new listings having risen by similar magnitudes, the national sales to new listings ratio at 62.1% was little changed from August when it was 61.9% and remains well off the peak reached in May of 65.3%. A sales to new listings 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 almost half of all local housing markets in September, virtually all of which continue to be located in British Columbia, in and around the Greater Toronto Area and across Southwestern Ontario. However, the ratio has moved out of sellers’ market territory and into the mid-50 percent range in Greater Vancouver and the Fraser Valley.

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity and there were 4.7 months of inventory on a national basis at the end of September 2016. The measure has remained virtually unchanged since April, with fewer sales in the Lower Mainland counterbalanced by a shrinking supply of listings in and around the GTA.

The tight balance between housing supply and demand in Ontario’s Greater Golden Horseshoe region is without precedent, the report says, including the GTA, Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, the Niagara Region, Barrie and nearby cottage country. The number of months of inventory ranges between one and two months in Greater Golden Horseshoe housing markets and is less than one month inside the GTA.