“More resilient than anticipated. No one predicted a big mid-year bounce in home sales. The upward trend and levels for activity in recent months has been steeper than expected. The outperformance has been particularly notable on the price side.”
Those are just some of the ways economists described Canada’s housing figures for August that were released today.
Sales across Canada surged 11.1% year-over-year to the chagrin of housing bears who whose few remaining lines of defense earlier this year had been “sales are a leading indicator for prices.“
The national average sale price rose 8.1% on a year-over-year basis in August, while the more accurate MLS® Home Price Index (HPI) showed an increase of 2.9%.
But there are reasons why August performed as well as it did.
CREA: Recent increases to fixed mortgage rates caused sales to be pulled forward as buyers with pre-approved financing at lower rates jumped into the market sooner than they might have otherwise. That pool of homebuyers has largely evaporated so demand may soften over the fourth quarter. The outsized year-over-year gains may persist, however, due to weak sales toward the end of last year.
TD Bank: The recent strength in Canadian housing needs to be kept in perspective. Sales are still well below historical peak levels. Four rounds of insured mortgage rule tightening have worked to temper home sales, which are still 11% below the peak reached in late 2009. Some of the strength over the summer months may reflect buyers jumping into the market in order to get ahead of increases in interest rates – 5-year mortgage rates have increased 70 basis points since June 2013. Looking forward, however, the increase in longer-term mortgage rates is likely to keep housing demand in check. (Read entire TD research note)
BMO: There are two important factors that help explain the showy year-on-year sales gain: 1) it’s an easy comparison, as year-ago sales were at a low ebb following the new mortgage insurance rules, and 2) summer sales were no doubt juiced by potential buyers jumping in with pre-approved mortgages before rates went higher. (Read entire BMO research note)
What’s going to happen in the next few months or years? While all the experts have opinions, none of them have the slightest idea for certain. The only sure thing is that another month has come and gone without a Canadian housing crash that some predicted was going to occur back in 2008.