Canada’s existing home sales drop in November, housing price growth likely to decelerate next year

Canada’s existing home sales fell in sequential terms in November after recording upward momentum for two months. It reversed all the gains made since September of 2015. With demand softening, the national sales-to-listings ratio dropped more than three points to 59.6 in November. Prices continue to rise at fairly strong pace, with the average existing home price rising 7.3 percent year-on-year and the MLS quality adjusted index rising 14.4 percent year-on-year.

The decline in demand was spread throughout two-thirds of regional markets with Ontario markets being the only exceptions given the rising demand and tight inventory. On the contrary, most commodity-dependent markets are rapidly approaching balanced territory. Most other markets are quite properly balanced. This was seen in the regional price story.

Home prices rose 20.3 percent year-on-year in Greater Toronto on a quality adjusted basis; however, it dropped 4 percent in Calgary and 1.2 percent in Saskatoon. Ottawa, Montreal and Moncton saw a more steady but healthy home price gains, noted TD Economics in a research report. Vancouver was the most subdued market with sales activity falling 37 percent year-on-year.

The changes to mortgage regulation rules were quite immediate in smaller markets as compared with the more dependent on first time home buyers to drive demand. Also, a likely shift in foreign buying from Vancouver to Toronto has restricted the immediate effect of the new regulation on the GTA and the surrounding areas. Furthermore, the drop in Vancouver average home prices between August and October was overstated as it was greatly related to compositional factors where sales at the top-end fell sharply.

As the new mortgage regulation and increased interest rates cool activity in 2017, price growth is expected to slow to a sub-1 percent pace nationally; however, prices in the hot markets in Ontario are expected to continue rising at a high-single digit pace, according to TD Economics.