Canada’s housing market activity likely to remain high in 2016

Existing homes sales in Canada dropped for the second straight month in June. Sales dropped 0.9 percent month-on-month in June. On an annual basis, however, it grew 5.2 percent. The housing market of Canada seems to be backing off high peak levels reached in May, but continues to be very hot with high level of activity in Ontario and British Columbia. Overall, housing market activity in the country is expected to remain high for most of 2016 with prices on track for a 12 percent rise on an annual basis in 2016, said TD Economics in a research note.

The Brexit vote might be a boon to the housing market of Canada given the implications of lower-for-longer interest rates, noted TD Economics. Furthermore, Canadian real estate has become kind of a safe haven. And money flowing out of the UK might find its way into Canada’s real estate markets, according to TD Economics.

In the future, Toronto’s home prices and smaller more affordable markets might have additional room to run, given the rebounds in affordability related to the decline in mortgage rates and still heavy pent-up demand. On the contrary, home prices in Vancouver are quite bid up and the market appears to have peaked. Supply has also began reacting to hot conditions that might assist in removing some steam out of prices, stated TD Economics.

“We still expect some further softness in housing activity across commodity-dependent housing markets given an elevated unemployment rate in most markets, but the stabilization in housing activity over 2016 suggests the peak-to-trough home price correction may be less severe than originally expected, or about half of the 10% we had projected before”, added TD Economics.

Looking at June’s data, listings grew 2.2 percent, aided by a recovery in Fort McMurray listings from nil, bringing the sales-to-listings ratio down to 63 percent in the month from May’s 65 percent. However, the resale market of Canada continued to be in seller’s territory with a sales-to-listings ratio between 40 and 60 showing a balanced market.

Tight market conditions pushed up the average home price by 11.2 percent year-on-year with the quality adjusted price index rising by 13.6 percent as price pressures widen throughout most housing type. Most of the decline in sales in June was mainly driven by Vancouver where sales have dropped since March.

Also, sales in Toronto dropped 1.2 percent on month-on-month basis. But these markets continue to be tight. Home prices are rising solidly in other Ontario and B.C. markets but below 2 percent pace elsewhere, noted TD Economics.