One of these cities is not like the others,
One of these cities just doesn’t belong,
Can you tell which city is not like the others
By the time I finish my song?
Year-over-year and year-to-date sales in Calgary highlight how there are regional differences across Canada.
Granted, Calgary average price increases recorded in August weren’t as large as other municipalities, but I’d rather take increasing sales with slow & steady price appreciation any day. (Note: According to the MLS HPI however, Calgary led the y/y rise in the index at +6.51%)
Between July and August 20 of 26 cities showed sales declines, including Calgary, but how that can be attributed to the new mortgage rules (as BMO does below) is beyond me. Seasonality. It happens every year.
This is NOT what sales do throughout the course of a year:
In the last decade there has only been one year when Calgary single family home sales actually increased between July & August and that was in 2005. It was a slight bump up from 1570 to 1602 sales.
So blaming a reoccurring and expected summer month-over-month decrease on the mortgage rules seems a little shortsighted to me. The year-over-year drop in sales in cities is more telling.
Here’s the bank commentary to CREA’s release:
Today’s data release marks our first full glimpse into the Canadian housing market post mortgage-rule changes. To recall, these new regulations became effective on July 9th, 2012. The weakness in both the price and sales series in August was largely expected and the regulatory-induced slowdown should persist over the next six to eight months.
Vancouver housing prices and sales will likely end 2012 in the red. A difference in the compositional sales will be behind the annual sales contraction posted. Some have argued that regional foreign investor activity has also dried up, but we do not have data to support or refute this claim. In spite of the marked contractions seen, the average existing home price remains about seven to eight times larger than the average household income. This suggests that many local Vancouver residents are still being priced out of the market.
The Canadian housing market has indeed ratcheted down its growth pace. In fact, in most local markets, it has reversed course with price and sales contractions becoming more the norm. In the absence of a catalyst like an interest rate increase or external economic shock, there really is no reason to think that the housing market will rapidly unravel from the levels currently seen.
The U.S. Federal Reserve recently announced that it would keep interest rates at ‘exceptionally low levels’ until mid-2015. This new development will enter the Bank of Canada’s decision on when it can raise interest rates in Canada. With the level of uncertainty present in the global economy, it is difficult to precisely pinpoint when Canadian interest rates will return to more normal levels. However, the longer these low levels persist in Canada, the greater the risk that home prices move further away from economic fundamentals. As a result, low interest rates could be a short-term gain for housing in Canada, but a longterm pain if the correction journey becomes more difficult and prolonged. (Source)
Bank of Montreal
Canadian existing home sales fell a seasonally-adjusted 5.8% in August, or 8.9% below year-ago levels, as demand continues to moderate. August was the first full month under stricter mortgage rules that took effect July 9th, so this softening in sales is hardly a surprise.
Fully 20 of 26 cities reported lower sales versus July, indicating that the rule changes indeed had a broad-based impact—notable were declines of 9.3% (m/m) and 7.8% in Vancouver and Toronto, respectively. New listings also fell in August, but a more modest 1.7% decline points to a market balance that is shifting more in buyers’ favour. The months’ supply of homes for sale sat at a seasonally-adjusted 6.5 in the month, up from a recent low of 5.6 in March and a five-year average of about 6. Nowhere is this more apparent than in British Columbia, where the months’ supply rose to 10.1 in August, matching the highest level since the depths of the recession. In Ontario, the shift in market balance has been much less pronounced, with the months’ supply sitting at 4.2, only slightly above long-run norms—note that new listings in Toronto fell a hefty 7.7% in August alone, perhaps in response to softer market conditions.
Generally softer market conditions are tempering prices. Average prices were just 0.3% above year-ago levels in August, but the more-representative MLS House Price Index was still up 4%, though it has now eased in two straight months. Again, location makes all the difference. Vancouver’s HPI is now below year-ago levels (-0.5% y/y) for the first time since the tail end of the recession, but Toronto prices are up a solid 6.3% y/y. Note that price trends in Toronto are consistent with construction trends—that is, well-supplied condos have slowed to 2.7% y/y, while scarce detached single-family home prices are up a more robust 7.7% y/y.
The Bottom Line: Stricter mortgage rules appear to be further softening the Canadian housing market, and the landing is tracking harder in some markets than others. (Source)
“Assuming that sales continue to trend lower over the remainder of this year, then the typical lag relationship between sales and prices indicates that house prices will eventually follow suit early next year,” he said. “We still think that house prices will decline by 25 per cent over the next year or two.
“Slumping home sales . . . suggests that the willingness of potential home buyers to pay seller’s astronomically high asking prices may be withering.” (Source)