Thanks to a rebound in existing home sales in the Greater Toronto Area (GTA), national home sales emerged from a slump in August.
“After four months of declines, August saw signs of life return to Canadian housing markets. This was all a GTA story, which was up 13.6 per cent while activity was largely flat across the rest of the country,” writes Michael Dolega, senior economist at TD Bank, in a statement.
According to the Canadian Real Estate Association’s (CREA) latest data release, published today, Canadian home sales rose 1.3 per cent last month compared to July but are still roughly 14 per cent below the record set in March.
It’s too soon to say if a national rebound has begun, as more time is needed to observe the markets after the Bank of Canada hiked interest rates last week.
For a second time in 2017, the central bank increased its overnight rate, which influences the mortgage market, by 25 basis points. The overnight rate is now one per cent, up from 0.5 per cent earlier this year.
“The picture will become clearer once mortgages that were pre-approved prior to recent interest rate hikes expire,” says Gregory Klump, CREA’s Chief Economist.
It has also been four months since the GTA saw a monthly increase in sales and activity remains well below highs seen earlier this year. Transactions are down 36 per cent from March and 35 per cent year-over-year.
Sales started to slide in the GTA in April after the Ontario government rolled out its Fair Housing Plan, which introduced a 15 per cent foreign-buyer tax for the Greater Golden Horseshoe, a region that includes the GTA.
Similar to Greater Vancouver, where a foreign-buyer tax was implemented in August 2016 to cool its hot market, the GTA saw a slowdown in activity immediately following the introduction of the levy. However, the most recent data indicates the market is on the rebound.
“We’ll wait to see what the coming months bring, but the worst may be behind Toronto following the Ontario policy changes,” says BMO Senior Economist Benjamin Reitzes, in a note about CREA’s release.
Meantime, sales activity in Vancouver continues to remain stable, up 7.3 per cent in August from July and 21.3 per cent from a year ago.
Year-over-year, national sales were down roughly 10 per cent in August and sales declined on an annual basis in about 60 per cent of all local markets, led by the GTA.
For a third straight month, newly listed homes dropped across the nation, falling roughly 4 per cent in August. The decline was primarily driven by a decrease in newly listed homes in the GTA, Hamilton-Burlington, London-St. Thomas, Kitchener-Waterloo and the Fraser Valley.
In August, the national housing market shifted toward a sellers’ market, with the national sales-to-new listings ratio rising to 57 per cent compared to 54 per cent in July.
According to CREA, a ratio between 40 per cent and 60 per cent typically indicates a balanced market and if levels are below and above this range it signals a buyers’ or sellers’ market, respectively.
Last month, the national average price of a home was $472,247, up 3.6 per cent from a year ago.
The MLS Home Price Index (HPI) increased by 11.2 per cent on an annual basis in August, representing further declines in annual gains since April, says CREA.
The increase in national prices was driven by year-over year price upticks in Ontario and BC markets, including the GTA (14.3 per cent), Guelph (19.5 per cent), Greater Vancouver (9.4 per cent) and Victoria (16 per cent).
Even though GTA home prices saw an annual gain last month, BMO’s Reitzes notes this level is still well below the 31 per cent rise seen in April.
As Calgary slowly recovers from its recession, the market remains in good standing, as prices increased 0.8 per cent year-over-year in August.
Reitzes says it’s unclear what’s to come for the Canadian housing market for the remainder of the year, but another rate hike before the end of the year could alter the market’s course.
“The Bank of Canada’s rate hikes should help contain any renewed exuberance, but if things do heat up again, expect policymakers to step in before too long,” says Reitzes.