Canadian Housing Market Report: June 2014

Download the full CREA statistics report for June: here pdf

Report Highlights

• National home sales rose 0.8% from May to June.
• Actual (not seasonally adjusted) activity stood 11.2% above June 2013 levels.
• The number of newly listed homes was little changed from May to June.
• The Canadian housing market remains in balanced territory.
• The national average sale price rose 6.9% on a year-over-year basis in June.
• The MLS® Home Price Index (HPI) rose 5.4% year-over-year in June.

Bank Commentary

TDTD Economics: Gains in the Canadian housing market over May and June have represented more than just a bounce back from weather-related weakness following the winter months. Mortgage interest rates hit record low levels in June, helping to fuel an acceleration in housing activity – including sales, prices and  homebuilding. Existing home prices (average and on a quality adjusted basis) are on track to outstrip  income growth for a second straight year in 2014 which only adds to concerns of an already-overpriced market.

Looking beyond the near-term boost from low interest rates, we are still of the view that the Canadian housing market will cool later this year and into 2015. For one, interest rates are not expected to remain this low for much longer with economic conditions forecast to pick up. Affordability, even at low interest rates, is already becoming an obstacle in many markets – particularly Toronto.  (Read full commentary here pdf)

bmoBMO Economics: Canada’s housing market continues to look balanced overall, with stark disparities persisting at the regional level. That said, it is a tad concerning that prices are running firmly ahead of income growth in a few major cities. Calgary is understandable and Vancouver is shaking off a mild correction, but Toronto might be getting too hot for its own good.  (Read full commentary here pdf)

scotiaScotia Economics:  Ultra-low borrowing costs and aggressive rate discounting continue to support housing affordability and demand, notwithstanding weak job growth and record high home prices. Activity is also benefitting from pent-up demand generated by a harsh winter, and increased supply as listings improve. However, the more moderate sales gain in June suggests the impact of these temporary factors may be waning.

While historically low interest rates continue to support homebuying activity, Canada’s housing market has more downside than upside risk over the medium term.  Valuations are stretched in many centres, and the eventual shift to a higher interest rate environment will reinforce a deterioration in affordability, particularly for first-time buyers in Canada’s largest urban centres.  The underlying pool of potential new buyers also appears limited, with homeownership rates at or near record levels across most age cohorts.  (Read full commentary here pdf)

RBC Economics: The housing story so far this year in CanaRBCda is as much about supply as it is about homebuyer demand. Scarcity of ‘quality’ listings this winter limited the choices available to buyers, many of whom consequently opted for the sidelines until more suitable offerings came along. Strong increases in new listings this spring widened the array of buying possibilities and no doubt contributed to fuel the spring season, late as it may have started. Attractive mortgage rates likely provided further motivation for homebuyers.

We believe that the run-up in resale activity since April likely satisfied any pent-up demand that emerged this winter when supply was short. Going forward, we expect resales to moderate gradually from recent monthly levels. The basis for this moderation primarily will be growing housing affordability pressure. In the near term, affordability will be strained by home prices outpacing income gains in key markets such as Toronto, Vancouver and Calgary. Later this year and into next, we expect higher interest rates to erode affordability more broadly. On the price front, we expect a modest gain of 3.4% in 2014 at the national level, followed by virtually no change (-0.1%) in 2015.  (Read full commentary here pdf)

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