Economic analysis

Canadian housing market continues to lose steam

Prices are down two per cent nationally: CREA

TORONTO – Home sales across the country declined marginally last month, continuing a recent trend toward a gradual cooling in what had been a red hot market, according to the Canadian Real Estate Association.

Overall, CREA said Wednesday resale housing numbers were down just 0.01 per cent in July compared with June, although non-seasonally adjusted sales were up 3.3 per cent last month compared with July 2011.

And, although prices were above year-ago levels in about seven of every 10 local markets, falling sales in Greater Vancouver drove the national average lower.

The Canadian average price for homes sold in July 2012 was $353,147, down two per cent from the same month last year. Excluding Greater Vancouver from the calculation, the average was up 1.1 per cent from a year ago.

Douglas Porter, deputy chief economist at BMO (TSX:BMO) Capital Markets, described the July numbers as a porridge that “Goldilocks would approve.”

“While sales activity and prices are no doubt simmering down, they are neither too hot nor too cold —perhaps just right,” Porter wrote in a report.

CREA said stable sales combined with fewer new listings kept the national housing market in balanced territory as the number of newly listed homes on its Multiple Listing Service fell 3.3 per cent from June to July and the national average home price was two per cent lower than in July 2011.

The association added that local housing markets were roughly evenly split between those that saw month-over-month gains and those that posted monthly declines.

The latest CREA figures appeared to confirm observations and predictions by Canada Mortgage and Housing Corp., which on Tuesday forecasted a moderate slowdown in both new-home construction as well as sales of existing homes.

CMHC said housing starts and home sales have been strong in 2012 — particularly when it comes to multiple-dwelling units such as townhouses, condos and apartments — but will soften moderately in coming months into 2013.

Based on data compiled by the Canadian Real Estate Association, CMHC said Tuesday that it expects about 466,600 units of existing housing to be sold this year and 469,600 units in 2013.

“Balanced market conditions in most local housing markets will result in a slowing in house price growth as well,” said Mathieu Laberge, CMCH’s deputy chief economist.

Various factors, including affordability and the exhaustion of pent-up demand have been cited for the gradual decline. A number of regulatory changes that have tightened mortgage lending rules are also believed to be having an effect.

Gregory Klump, CREA’s chief economist, said recent regulatory changes mean some first-time home buyers may have difficulty qualifying for mortgage financing due to shortened amortization periods.

“As the lynchpin of the housing market, lower first-time buying activity will have knock-on effects over the rest of the market,” he said, adding that it will likely take more time for buyers looking to upgrade to sell their current home.

Francis Fong, an economist with TD (TSX:TD) Economics, said the flat market in July following four consecutive months of contraction, showed that on a trend basis sales have essentially been flat since the end of last year.

In addition to the changes in lending rules, the recent slowdown was also “a reflection of a Canadian household that is increasingly wary of taking on more debt” amid stalled job growth in an uncertain global economic environment.

“From an economic risk perspective, the moderation in the resale housing market is a positive development,” Fong said.

“Slowing the pace of debt accumulation and housing activity now reduces the risk that households will get into financial trouble down the road when interest rates do eventually rise.”

Porter noted, however, that big regional divergences remain in the market.

“Toronto has left the too-hot porridge bowl, with sales dipping 4.4 per cent year over year and price increases calming to a just-right pace of 3.9 per cent year-over-year,” he wrote.

“Meantime, Vancouver is definitely in the too cold bowl, with double-digit declines in both sales and reported prices, although with average prices of $667,000, it is still easily the most expensive in the country.”

Meanwhile, the association said that nationally, resale inventories, or the time it would take to sell current inventories at the current sales rate was 6.1 months at the end of July, unchanged from the June reading and about where it has been since the end of 2010.

Meanwhile, the MLS Home Price Index, which tracks prices in five of Canada’s most active housing markets — Greater Vancouver, the Fraser Valley, Calgary, Greater Toronto, and Montreal — was up 4.5 per cent year-over year in July.

“This was the third time in as many months that the year-over-year gain shrank, and marks the slowest rate of increase in over a year,” with gains moderated in all housing categories, CREA said.

One and two-storey single family homes posted the strongest year-over-year growth in July, with two-storey single family home prices up 5.8 per cent and one-storey single family prices up 5.6 per cent.

Prices for townhouse and apartment units continue to see more modest gains, rising 2.5 per cent and 2.2 per cent respectively.

The HPI posted the largest year-over-year increase in Greater Toronto at 7.1 per cent, followed by Calgary at six per cent. Lower increase were posted in the Fraser Valley (2.5 per cent), Montreal (2.1 per cent), and Greater Vancouver (0.6 per cent).

However, on a month-over-month basis, prices were down everywhere but Calgary and the Fraser Valley, up 0.3 and 0.14 per cent respectively.

Elsewhere, prices were down month over month by 0.46 per cent in Montreal, 0.33 per cent in Greater Toronto and 0.74 per cent in Greater Vancouver.

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