January 15, 2018

Mortgage Rule Anxiety Fueled December Real Estate Market: CREA

The 2017 national housing market ended the year on a strong note, with higher-than-usual activity in the face of looming new mortgage regulations.

Home sales soared for the fifth month in a row in 60 per cent of markets, “fully recovering from the slump last summer,” reports the Canadian Real Estate Association, with 4.5 per cent more homes changing hands than in November, and up 4.1 per cent from 2016. This is despite softer conditions in the Greater Toronto Area; slower sales in that region were offset by booming activity in British Columbia’s Lower Mainland, Vancouver Island, Calgary, Edmonton, Ottawa, and Montreal.

Related Read: Canadian Real Estate vs. Other Investments in 2017

Softer House Demand Slowed Price Growth

However, a 3.3-per-cent increase in newly listed homes for sale and softening prices for the detached segment put downward pressure on home values with the MLS Home Price Index increasing just 9.1 per cent – the eighth consecutive deceleration, and the smallest growth since February 2016.

The national average home price rose 5.7 per cent year over year to $496,500. However, excluding the GTA and Greater Vancouver would strip out $116,000, to an average of $381,000 for the rest of Canada.

Andrew Peck, president of CREA, expects December’s robust activity to continue into the new year, despite anticipated higher borrowing costs; strong economic fundamentals such as job growth will continue to support the market.

“Monthly momentum for national home sales activity gained strength late last year and further expected economic and job growth will buoy sales activity this year despite slightly higher expected interest rates,” he stated.

“Pull-Forward” Effect Could Continue into New Year

However, CREA’s Chief Economist Gregory Klump said he suspects December’s strong performance is due to the “pull forward” effect, as many buyers and sellers rushed to market to evade the impact of new mortgage stress testing rules.

“National home sales in December were likely boosted by seasonal adjustment factors and potential pull-forward of demand before new mortgage regulations came into effect this year,” he stated. “It will be interesting to see if monthly sales activity continues to rise despite tighter mortgage regulations that took effect on January 1^st.”

CREA reports that two thirds of tracked housing markets remain in “balanced” territory, with a sales-to-new-listings ratio between 40 – 60 per cent; below and above those thresholds indicate buyer’s and seller’s market conditions, respectively. The amount of national inventory – the amount of time it would take to completely sell all of the available homes on the market – sat at 4.5 months.

Slower Ontario Drags National Average

However, national trends are being dragged down by comparatively softer conditions in Ontario’s Greater Golden Horseshoe, which continues to absorb the impact of the provincial Fair Housing Plan introduced in April. Inventory in the region sits at 2.1 months, “up sharply” from the all-time low of 0.9 months at the market’s peak last March – however, it’s still well below the long-term average of 3.1 months, and the tightest it has been in seven months, CREA reports.

Slower activity in the region, mainly in the priciest single-family home segment, has led to deceleration in the national pace of price growth – condos continue to lead the market, with strong 20.5-per-cent year over year value gains. Townhouses appreciated 13 per cent, while one-storey and two-storey detached homes rose just 5.5 and 4.5 per cent, respectively.

Click here to check out Toronto condos for sale>

Benchmark prices rose in 9 of the 13 markets tracked by CREA. Check out the year over year change in markets across Canada in the infographic below:

British Columbia: Prices are reaching new highs after slowing somewhat in the second half of 2016, rising 15.9 per cent in Greater Vancouver, 20.9 per cent in the Fraser Valley, 14 per cent in Victoria, and 19 per cent throughout the rest of Vancouver Island, following the strong growth trend seen in Autumn.

Greater Golden Horseshoe: While price gains have slowed considerable in the Greater Toronto Area, values still rose 7.2 per cent year over year. Prices are up 13 per cent in Guelph, though the Oakville-Milton region has softened 0.8 per cent year over year.

Eastern Canada: The corridor between Eastern Ontario and the Maritimes is enjoying robust growth, with prices up 6.6 per cent in Ottawa, fueled by strong demand for two-storey houses (+6.3 per cent). Greater Montreal prices rose 5.4 per cent. Values in Greater Moncton rose 5.3 per cent.

Prairies: Conditions remain soft in the bread basket, with Calgary home prices decreasing 0.4 per cent from 2016, with 4-per-cent and 3.7-per-cent declines in Regina and Saskatoon.