Canada Housing Sales Rebound in November
By Paul Vieira
OTTAWA--Canadian home sales rebounded in November and posted their first year-over-year gain since March, or around the same time authorities implemented measures aimed at curbing exuberance in the Toronto-area market.
The latest monthly figures from the Canadian Real Estate Association also arrived with a revised quarterly outlook, in which the group anticipates sales to decline more than originally expected in 2018 due to the arrival of tougher mortgage-financing rules from the country's banking watchdog. The drop in sales, the group estimated, equates to a decline in economic activity of more than 1 billion Canadian dollars ($780 million) and a loss of 12,000 jobs.
The Ottawa-based association, which represents the country's real-estate agents, said sales activity across Canada in November rose 3.9% from the previous month on a seasonally adjusted basis, led by a rebound in the greater Toronto area.
On a year-over-year basis, sales climbed 4.1% on an actual, or not seasonally adjusted, basis in November, which CREA said was a record for the month. A number of large markets posted year-over-year activity gains, it said, including Vancouver, Ottawa and Montreal.
The association said the strong November results reflect in part a push by potential home buyers to lock in deals before new mortgage-financing rules kick in on Jan. 1.
The most notable new measure is a provision that would require all prospective buyers--even those with a down payment of more than 20%, who were previously exempt--to undergo a so-called stress test before a bank can issue a loan. Under the stress test, prospective buyers would have to qualify for a mortgage at a rate at whichever is greater: either 2 percentage points above the negotiated rate, or the Bank of Canada's five-year benchmark rate.
"It remains to be seen whether stronger momentum now will mean weaker activity early next year once new mortgage regulations take effect," said Gregory Klump, the association's chief economist.
The Bank of Canada said in a recent report it believes the new mortgage rules will weigh on overall economic activity but will also help mitigate the risks posed by the housing market to the country's financial system.
Overall, CREA's benchmark-price index rose 9.3% on a 12-month basis in November, for a further deceleration in annual prices gains that began in the spring. In April, the Ontario government introduced measures aimed at slowing significant annual house price gains in the Toronto area, of 30% or more. The centerpiece of the policy measures was a 15% tax on foreign-led house purchases.
In the greater Vancouver area, benchmark home prices rose 14% on an annual basis and a whopping 62.7% on a three-year basis. The 12-month gain was noticeably slower in the Toronto area, 8.4%. On a three-year basis, Toronto area house prices rose more than 43%.
Housing starts have surged in Canada, with the underlying long-term trend hitting a decade high in November, as price increases for new units have been markedly slower than the resale market.
CREA said in its quarterly forecast that national sales in 2018 are expected to decline 5.3% to 486,600 units, due to the new mortgage rules and an erosion in housing affordability. The group added it anticipates some buyers to respond by opting for a lower-priced home, while others might opt to stretch the amortization period beyond the 25-year timeframe when financing their purchases.
Bank of Canada research indicates the share of borrowers with a down payment of more than 20% that are opting for longer amortization periods is increasing. The central bank said this can be a symptom of borrowers stretching to meet their debt-service requirements.
Write to Paul Vieira at firstname.lastname@example.org
(END) Dow Jones Newswires
December 14, 2017 10:51 ET (15:51 GMT)Copyright (c) 2017 Dow Jones & Company, Inc.