Property prices and sales continue to rise in Canada despite mortgage changes

Tighter mortgage criteria in Canada does not seem to be impacting the nation’s property market yet with sales and prices continuing to rise.

The new rules only came into play in the middle of October so the effect is more likely to show in the coming months and could affect first time buyers the most, according to the Canadian Real Estate Association (CREA).

In its latest index CREA reports that national home sales rose 2.4% month on month, average prices increased 5.9% year on year and the number of homes being listed for sale edged up 1.7% from September to October.

Activity was up on a month on month basis in about 60% of all local markets, led by the Fraser Valley, Calgary, Edmonton, Hamilton-Burlington and Montreal.

The actual (not seasonally adjusted) national average price for homes sold in October 2016 was up 5.9% year on year to $481,994 and the index report points out that this 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 so it is now having less upward influence on the national average price. Even so, the average price is reduced by more than $120,000 to $361,012 if Greater Vancouver and Greater Toronto sales are excluded from calculations.

Prices in nine of the 11 markets covered by the index increased year on year but there are considerable regional variations. Fraser Valley recorded the biggest rise at 32.5% followed by Greater Vancouver with growth of 24. 8%, although the index says that single family home prices in both of these markets are now off peak. Prices also increased by 20.1% in Victoria, by 19.7% in Greater Toronto and by 15.8% in Vancouver Island.

By contrast, prices were down 4.1% year on year in Calgary. Although home prices there have held mostly steady since May, they have been below year ago levels since August 2015 and are down 5.1% from the peak reached in January 2015. Home prices also edged lower by 1.3% in Saskatoon and have also held below year ago levels since August 2015.

More modest annual price growth has been recorded in Regina where they increased by 4.5%, were up 3% in Ottawa, by 2.8% in Greater Moncton and by 2.6% in Greater Montreal.

‘The expanded stress test for home buyers who need mortgage default insurance took effect in the middle of October. More time will need to pass before its effect on housing markets can be gauged. The extent to which they will push first-time home buyers to the sidelines may vary among housing markets,’ said CREA president Cliff Iverson.

CREA chief economist Gregory Klump pointed out that first time buyers looking to get into the market before having to face tougher mortgage eligibility criteria had only two weeks to do so following the Finance Minister’s announcement of tighter mortgage regulations in early October.

‘Early evidence suggests that the influence of tighter mortgage regulations on sales activity has been mixed. The federal government will no doubt want to monitor the effect of new mortgage regulations on the many varied housing markets across Canada and on the economy, particularly given the recent rise in uncertainty about economic growth prospects following the US Presidential election,’ he added.

With sales having risen by slightly more than new listings in October, the national sales to new listings ratio edged higher to 62.9% compared to 62.4% in September. A sales to new listings ratio between 40 and 60 percent 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 half of all local housing markets in October, the vast majority of which continue to be located in British Columbia, in and around the Greater Toronto Area and across Southwestern Ontario. The ratio has moved out of sellers’ market territory and into the mid-50 percent range in Greater Vancouver.

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. The index shows that there were 4.5 months of inventory on a national basis at the end of October 2016, the lowest level in almost seven years and the tight balance between housing supply and demand in Ontario’s Greater Golden Horseshoe region is without precedent, the report added.