Canada’s existing home sales grow for second straight month in October, but housing activity to edge lower in 2017

Canada’s existing home sales grew for the second consecutive month in October, breaking the downtrend that was seen in mid-2016. Existing home sales grew 2.4 percent on a sequential basis in the month. On a year-on-year basis, home sales rose 2 percent; however, it continues to stay 2.6 percent below the peak reached in April in 2016.

Overall, the market continued to be in seller’s territory with the sales-to-listings ratio rising slightly to 62.9 percent in October, while the inventory dropped to 4.5 in the month, the lowest level in more than seven years.

The average home price measure was up 5.9 percent year-on-year in October; however, it was due to less sales occurring in the Greater Vancouver Area. Nevertheless, the MLS composite home price index was up 14.6 percent on a year-on-year basis, with double-digit price gains becoming more widespread throughout housing types. Two-storey single-family detached home prices continue to expand at the most rapid rate (16.7 percent); however, apartments and townhomes also grew at a faster pace of 11.4 percent and 16 percent, respectively.

Region wise, the strongest year-on-year home price gains was continued to be seen in the Fraser Valley and Vancouver. But the paces of growth have alleviated from the peaks recorded in July 2016. On the contrary, Toronto home prices are rapidly rising with the MLS HPI, increasing by 19.7 percent year-on-year. Other markets are also beginning to pick up, with Ottawa recorded a price growth of 3 percent, while Regina and Montreal recorded a price gain of 4.5 percent and 2.6 percent, respectively.

CREA stated that the new mortgage regulations were implemented in mid-October and there have not begun impacting housing market activity yet, noted TD Economics in a research report. The full impact of the new mortgage regulations might not be fully felt until the New Year.

The rebound in housing demand throughout several housing markets in Canada, except Vancouver, is greatly in line with lower interest rates and potentially a near-term boost in demand as homebuyers try to get into the market before being subject to new mortgage regulations, according to TD Economics.

Nevertheless, the market activity is likely to begin 2017 on a weaker footing as the total package of new regulations is entirely implemented and higher interest rates begin to be felt. Sales are expected to fall next year, with prices likely to drop nearly 2 percent, added TD Economics.

“We expect prices to fall 10 percent in Vancouver and, while relatively tight market conditions will keep Toronto's prices from falling, we expect price growth to moderate to 2 percent to 4 percent by next year”, said TD Economics.