Prices still rising in most housing markets, but softer sales likely
Canadian home sales numbers for June show the first annual decline since April 2011, suggesting housing markets are beginning to show clear signs of cooling.
Canadian home sales fell a seasonally adjusted 1.3 per cent in June from May and 4.4 per cent below year-ago levels. Similarly, average prices fell 0.8 per cent, year-over-year, in June, although they continue to be skewed down by the sales mix (i.e., sharply lower sales in pricey Vancouver). In fact, about 70 per cent of Canada’s cities are still reporting price increases despite the headline decline, with a median 1.9 per cent year-over-year rise among the 26 largest markets.
“Reports of the demise of price increases in Canadian housing have been greatly exaggerated, at least up to this point,” says BMO Capital Markets Deputy Chief Economist Doug Porter.
“What hasn’t been exaggerated are softer sales; the June swoon compares with an average 7 per cent year-over-year rise in the first five months of 2012. The new, tighter mortgage insurance rules, which kicked in last week, will chill a market that had already seen 16 of 26 markets post June sales drops.”
“Even before the new mortgage rules kicked in, all signs suggested that the Canadian housing market was already cooling – the new rules will simply pull hard on a closing door,” states Porter.
“Toronto prices are up 6.8 per cent year-over-year, while a 13.3 per cent slide in Vancouver is the only double-digit drop in Canada – the latter due to the sales mix; weighted prices are still up a touch in that city. More broadly, B.C. has become a buyers’ market with the sales-to-new listings ratio well below normal levels,” explains Porter. “Calgary is arguably the strongest market, with sales up 16.7 per cent in the past year, one of only three markets reporting double-digit sales gains.”
BMO Bank of Montreal Mortgage Expert Laura Parsons notes that even in a period of softening prices, Canadian homebuyers need to continue to ensure they are not over-stretching themselves when they finance the purchase of a home.
“If you plan to purchase a home, continue to look at ways to effectively manage your mortgage debt over the long term,” says Parsons. “Stress-test your mortgage against a higher interest rate to be sure you can handle any increases in interest rates down the road.”
Category: Real Estate