This morning, the Canadian Real Estate Association (CREA) released its national real estate statistics for November showing the largest monthly decline in activity since August 2012. The number of home resales now stands at its lowest level since September 2015. Activity was down on a month-over-month basis in about two-thirds of all local markets, including Vancouver and Toronto. This suggests that recent efforts by the federal government to cool the nation’s housing market is having an impact.
“November was the first full month in which the expanded stress-test was in effect for home buyers with less than a twenty percent down payment,” said CREA President Cliff Iverson. “The government’s newly tightened mortgage regulations have dampened a wide swath of housing markets, including places not targeted directly by the government’s latest regulatory measures. The extent to which they pushed first-time home buyers to the sidelines varies among housing markets. All real estate is local, and REALTORS® remain your best source for information about sales and listings where you live or might like to in the future.”
“Canadian housing market results for November suggest that Canada’s housing sector is unlikely to be as strong a source for economic growth as compared to before mortgage regulations were recently tightened,” said Gregory Klump, CREA’s Chief Economist. “Housing activity generates a lot of spin-off spending, which makes its weakened prospects an additional source of uncertainty as regards the outlooks for Canadian economic and job growth.”
Finance Minister Morneau announced measures to tighten qualifications for fixed rate mortgage loans and to restrict the insurability of these loans in early October. In addition, foreign exemption from capital gains taxes on Canadian real estate were limited to primary residences.
Another bit of uncertainty has been injected into the Canadian housing market by the surge in long-term interest rates around the world since the Trump election. This has put modest upward pressure on Canadian mortgage rates. As well, the US Federal Reserve hiked overnight rates by 25 basis points yesterday and has suggested that the pace of rate increases next year could be a bit more rapid than earlier expected. Even though the Bank of Canada will not follow the Fed in hiking interest rates anytime soon, mortgage rates here are tied to five-year government bond yields, which have increased sharply in the past month or so since the US election, and will continue to be impacted by US bond market movements.
The decline in activity was driven by a sharp fall in British Columbia, falling 3.4% in Vancouver. Sales in Toronto were down 2.4%.
Number of Months of Inventory
The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity.
There were 4.8 months of inventory on a national basis at the end of November 2016–up from a six-year low of 4.5 months in October, and the highest level of inventory since March 2016.
The number of months of inventory is at a record low in the Greater Golden Horseshoe region of Ontario, ranging between one and two months in Hamilton-Burlington, Oakville-Milton, Kitchener-Waterloo, Brantford, the Niagara Region, Barrie and nearby cottage country. It has slipped to below one month in the Durham Region, Orangeville, Oakville-Milton, Kitchener-Waterloo and Cambridge. It stands at about one month in Toronto.
According to Jason Mercer, the Toronto Real Estate Board’s Director of Market Analysis, “Seller’s market conditions continued to prevail as buyers of all home types experienced intense competition in the marketplace. Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments.”
Prices Continue to Rise
The Aggregate Composite MLS House Price Index (HPI) rose 14.4% y-o-y last month, down a bit from 14.6% in October reflecting a slowdown in single-family home price appreciation.
This price index, unlike those provided by local real estate boards and other data sources, provides the best gauge of price trends because it corrects for changes in the mix of sales activity (between types and sizes of housing) from one month to the next.
The Fraser Valley (+29.7%) posted the largest y-o-y gain in November, while gains of around 20% were recorded in Greater Vancouver (+20.5%), Victoria (+20.6%) and Greater Toronto (+20.3%). Vancouver Island also registered a double-digit increase in home prices (+16.8% y-o-y).
By contrast, home prices were down 4% y-o-y in Calgary, and edged lower by 1.2% y-o-y in Saskatoon. As a result, home prices are off their 2015 peaks in these markets by 5.5% and 3.9% respectively.
Meanwhile, home prices posted y-o-y gains in Regina (+5.4%), Ottawa (+3.4%), Greater Montreal (+3.1%) and Greater Moncton (+3.5%).