March 15, 2018
February National Home Sales Fall for Second Month: CREA
A combination of “policy-related headwinds” such as provincial housing measures, mortgage rules, and rising interest rates, are taking a bite out of national market growth, and will continue to do so until 2019, reports the Canadian Real Estate Association.
CREA’s February report reveals national sales are down for the second consecutive month since December, sliding 16.9 per cent year over year and 6.5 per cent from January – a five-year low. Activity declined in three quarters of tracked markets, and is 7 per cent below the 10-year average for the month.
National Real Estate Prices Fall By 5%
Prices have followed that downward trend, easing 5 per cent to an average of $494,000. Excluding the Greater Vancouver and Greater Toronto Area regions would strip out $112,000 from the national average price, to $382,000. While the MLS Home Price Index rose by 6.9 per cent year over year, it reflects the 10th consecutive deceleration in gains meaning that, while home values are rising, they’re doing so at a slower pace.
Price declines in the Greater Golden Horseshoe largely led the downward trend, as detached home prices stall; two-storey single-detached house price growth has been flat at 1 per cent, while one-storey house prices increased by 3.5 per cent. Condos continue to lead the market with 20.1 per cent growth, followed by townhouses at 11.8 per cent.
New Mortgage Rules and Policies Drag Market
CREA’s Chief Economist Gregory Peck attribute the cooler first quarter to the new mortgage qualification rules that came into effect in January; the December market was abnormally robust as buyers rushed to close their transactions before the deadline, pulling forward the activity that typically occurs early in the year.
“The drop off in sales activity that followed the record-breaking peak late last year confirms that many home buyers moved purchase decisions forward late last year before tighter mortgage rules took effect in January,” he says. “Momentum for home sales activity going into the second quarter is also likely to be weighed down by housing market uncertainty in British Columbia, where new housing policies were introduced toward the end of February.”
CREA Updates Forecast for Cooler 2018
As a result, the national association has downsized its forecast for this year and next, as additional interest rate increases are anticipated to put more pressure on buyers, and new provincial policies add flux to the market. Sales are expected to drop 7.1 per cent to 479,000 units this year, to recover slightly to 496,500 units by 2019. Prices will decline 2.3 per cent this year compared to 2017, to an average of $498,100, but will rebound by 3.1 per cent to $513,300 next year – on par with 2017 levels.
CREA says that the policies introduced in Ontario and British Columbia – such as the Fair Housing Plan, foreign buyer’s taxes and Vancouver’s Empty Homes Tax – had a “stronger-than-expected” response, adding that additional changes have been brought to the market since it last released its forecast in December.
“Since then, more provincial housing policy measures have been announced to further cool housing markets in BC,” CREA’s report states, adding there’s more pain to come for those requiring new low-ratio mortgages. “Additionally, interest rates have risen further and the stress test on mortgage applications involving more than a 20-per-cent down payment has come into effect.
“Interest rates are widely expected to rise further this year. Higher interest rates make mortgage stress tests a more difficult hurdle for home buyers that need mortgage financing.”
Related Read:30-Part Housing Plan Revealed in BC Budget
Number of Homes for Sale Recovered Slightly from January
The good news for buyers looking to enter today’s market is there was a slightly larger supply of homes for sale in February, compared to the month before. New inventory rose 8.1 per cent, compared to the 20-per-cent dearth experienced in January, CREA notes. However, this is still historically low, falling below every month in 2017 with the exception of January, and 6.4 per cent lower than the 10-year average.
However, this slight uptick, compared with fewer sales, has further softened national market conditions with a sales-to-new-listings ratio of 55 per cent – indicating balanced conditions – compared to 63.7 per cent in January. This ratio, which is calculated by dividing the number of sales by the number of new listings available over a specific time period, indicates the level of competition in the market. A ratio between 40 – 60 per cent is considered balanced, with levels below and above that range indicating buyers’ and sellers’ market conditions, respectively.
According to CREA, three quarters of all markets remained in balanced territory in February. The number of months of inventory – which refers to the amount of time it would take to completely sell off all homes available for sale – is at 5.3 months, which is the highest level in 2.3 years.
February National Home Sales and Prices by Region
According to CREA, slower sales in the Greater Vancouver and Greater Golden Horseshoe regions have dragged on the national average. “Slowing year-over-year home price growth largely reflects trends for the GGH housing markets tracked by the index,” the report states. “Prices in the region have stabilized or begun to show tentative signs of moving higher in recent months; however, year over year comparisons are likely to continue to deteriorate further due to rapid price gains posted one year ago.”
Check out the February year-over-year comparison for Canada’s major real estate markets in the infographic below:
British Columbia: While sales are down, composite prices are trending higher, having fully recovered from the softening experienced in 2016, when the province introduced a foreign buyer’s tax in the Metro Vancouver region. Prices are up 16.9 per cent in the Greater Vancouver Area, 24.1 per cent in the Fraser Valley, 14 per cent in Victoria, and 20 per cent throughout the rest of Vancouver Island. Condos are the main source of price growth in the province, notes CREA.
Ontario: Price gains have “slowed considerably”, but are still up 3.2 per cent year over year in the GTA, as demand persists for Toronto houses for sale. Guelph has increased 9.3 per cent, while Oakville-Milton has declined 1.9 per cent. Ottawa, which has been experiencing a demand boom for two-storey detached homes, enjoyed an increase of 8.9 per cent.
“The monthly price trends in these markets have begun to show signs of stabilizing or tentative upward movement in recent months,” states the report.
Prairies: Home price growth in Calgary continues to be flat at 0.1 per cent, while Regina and Saskatoon both experienced declines, down 4.8 and 3.8 per cent, respectively.
Eastern Canada: Montreal continues to experience robust price growth, up 6.1 per cent, fueled by an 8.8 per cent increase in the townhouse / plex segment. Greater Moncton prices rose 5 per cent, led by a 6.4-per-cent increase for one-storey single-family homes.