Canada’s housing market begins to apply the brakes
The housing market is already decelerating, making a discussion about overheated home prices premature at this point, says the association which represents realtors.
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October sales could be the real test for the market as pre-approved mortgages, at rates long since gone from the marketplace but held in place for 120 days, are no longer boosting sales.
“While the momentum for sales activity began improving a few months ago, it may be losing steam after having just climbed back in line with an average of the past 10 years, said Gregory Klump, chief economist with the Ottawa-based Canadian Real Estate Association, which represents about 100 boards across the country.
“Take a look at month over month and we’re up a whole eight-tenths of a per cent. It’s a deceleration from what we saw in August [up 2.9% from July.].”
The month-to-month numbers are all seasonally adjusted and paint a different picture than the year-over-year results which show September housing sales were up 18.2%.
While Vancouver sales were 63.8% from a year ago in September a closer look at activity remains below the 10-year average in Canada’s most expensive city.
“If you are looking at the long-term average, I would suggest the numbers speak otherwise,” said Mr. Klump, acknowledging an overheated market could cause Finance Minister Jim Flaherty to intervene again with tougher mortgage rules. “He wouldn’t hesitate to reign it in, if there was evidence of overheating. But after tightening them four times in the past four years, he’s been successful, we are just at the long-term average.”
Some evidence would suggest prices continue to shoot higher with the average sale price last month reaching $385,906 in September, an 8.8% increase from a year ago. At the same time, the association’s MLS Home Price Index, designed to smooth fluctuations caused by anomalies in specific markets, was up 3.1% in September from a year ago.
“The 8.8% reflects the fact sales were very weak a year ago in some very expensive markets,” said Mr. Klump.
Almost everybody agrees the real test for housing will come in October, as the sector now adjusted to tougher mortgage rules, deals with the fact rates have climbed. The prime lending rate remains at 3% but five-year closed fixed rate mortgages are as high as 3.89% at banks on a discounted basis after dropping below 3% earlier in the year.
“We are starting to see some deceleration but the numbers are already inflated because [of pre-approved mortgages. I would not put too much weight on the [September] numbers,” said Benjamin Tal, deputy chief economist with CIBC World Markets.
He notes the markets has corrected in terms of sales activity but the larger question is why haven’t prices followed sales down. “The market is still a bit too strong,” said Mr. Tal, who believes it makes more sense for prices to drop.
In a down market, you need greater exposure to sell your property
David Madani, an economics with Capital Economics, suggests there might be another factor influencing the market which some realtors may not have even considered.
Mr. Madani says he hears anecdotal tales of people coming back to the multiple listing service after trying to sell properties through private for-sale-by-owner networks — something that would boost sales numbers. CREA only tracks MLS numbers so there is no data on how much activity occurs outside it, although evidence presented to the Competition Bureau has suggested organized real estate controls about 90% of the market.
“More prospective sellers are using the much larger MLS network than the smaller private network,” said Mr. Madani. “At the peak of the market, there was more liquidity [in the FSBO networks]. If you’ve got more people using the MLS, presumably you would be talking more sales. In a down market, you need greater exposure to sell your property.”