Canada’s existing home sales fall in August, average home price likely to fall 1 pct in 2017

Canada’s existing home sales dropped in August for the fourth straight month. The existing home sales print saw a decline of 3.1 percent in the month, bringing resale activity 6.9 percent below the peak reached in April 2016. But on a year-on-year basis, existing home sales rose 10.2 percent. In August, listings dropped by 2.7 percent, keeping the sales-to-listing ratio constant at 61.6 percent, which is still on the margin of a seller’s market, said TD Economics in a research note.

Average existing home prices rose only 5.4 percent year-on-year in the month, decelerating sharply from the double-digit rate. Most of the deceleration is because Vancouver is rapidly declining as a share of overall existing home sales. On a quality adjusted basis, existing home prices rose 14.2 percent year-on-year.

Existing home sales have fallen throughout most markets last month; however, Vancouver has rapidly shifted from one of the most solid markets to the weakest in recent months. The region’s resale activity declined 18.6 percent sequentially and 26 percent down on year-on-year basis. Home prices continue to increase by 32 percent year-on-year; however, the measure of home prices tends to lag the average home price, noted TD Economics.

The double- digit home price growth was a significant sign of overheating in the country’s two biggest housing markets, Vancouver and Toronto. But, in recent months, Vancouver has started cooling off sharply.

“We expect some of the extreme weakness in August to be reversed in the coming months as the shock of the new land transfer tax on foreign buyers dissipates”, stated TD Economics.

However, the market is likely to remain subdued at least throughout early 2017. On the contrary, house price appreciation in Toronto has overtaken Vancouver recently and is increasing more rapidly than any other major market in Canada. Home prices in Toronto are likely to rise at a pace of double-digit through the remainder of 2016, underpinned by foreigners who seem to be shifting their focus from Vancouver.

But affordability of housing in Toronto is wearing away rapidly for domestic buyers. This is expected to take some steam out of housing activity in 2017.

“Relatively tight market conditions and a lack of new initiatives to tax foreign real estate activity should keep Toronto home prices in the black, with home price appreciation to cool in line with inflation beginning in mid-2017”, according to TD Economics.

Lower interest rates, along with moderate economic gains, are likely to main housing activity quite stable elsewhere in Canada. However, weakness in Vancouver and Toronto are likely to push down the average Canadian home price down 1 percent in 2017, said TD Economics.