Housing Market Cooling Across Canada

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The Canadian housing market has begun to correct itself, or at least that’s what the numbers show. A combination of market fatigue, stricter mortgage rules and a decrease in property affordability are believed to be contributing to the long anticipated correction. Home sales fell 5.8 percent in August from July. Sales are down 8.9 percent year over year.

With that being said, Canadian home resale prices edged slightly higher in August over July numbers. According to the Teranet-National Bank Composite House Price Index, overall pries of repeat sale single-family homes climbed 0.2 percent in August from July.

This is the smallest August gain in 12 years. Falling prices were also recorded in three of 11 markets surveyed by the index. 

A Look at the Numbers

The 0.2 percent monthly gain in August was the sixth consecutive increase. This number was bolstered by a 2.0 percent increase in Hamilton. Other increases included a 0.8 percent hike in Ottawa and a 0.7 percent increase in Toronto and Edmonton. Prices feel in Vancouver (1.2 percent), Victoria (0.7 percent) and Quebec City (0.6 percent).

Compare these numbers to one year earlier – Toronto was up 8.3 percent, Hamilton was enjoying a 7.1 percent price spike.

Cooling Market a Good Thing?

A slowing real estate market isn’t necessarily a bad thing, however. A market correction could be positive for the stability of the nation’s banking system, which in turn could help improve the sustainability of economic growth. Remember, household indebtedness, which is driven primarily by mortgages, is viewed as the main threat to the credit risk profiles of Canada’s big banks.

On the flip side, a slowdown in residential construction spending will certainly have a negative impact on economic growth in the near term. This is especially true in Toronto, where confidence in the new homes market is crucial to the GTA’s economy. The Toronto new homes industry employs more than 193,000 people. Not surprisingly, it is one of the largest contributors to economic growth in the province.

Feeling the Chill in Toronto

The decline is being felt in both high-rise and low-rise sales in Toronto. August high-rise condo sales were 645 in August 2012, down from 1,967 a year ago. Oddly enough, prices for low-rise properties in Toronto continue to rise. August sale prices for low-rise homes increased roughly 12.7 percent from a year earlier. By comparison, the index price for high-rise properties was $436,460, a drop of 4.8 percent from a year ago.

Are Canadians Clamping Down on Debt?

Household debt has been a major bone of contention in the ongoing saga of Canadian housing prices. But the question remains: are Canadian’s heeding the warning and cutting back their consumer spending? According to a new poll, many Canadians appear to be quite comfortable with using debt as a financial strategy, even now when debt loads are at an alarming hike.

The survey, which was completed by Hoyes, Michalos & Associates, bankruptcy trustees, found that nine out of ten respondents would consider borrowing money in order to cover unexpected costs. Less than half of respondents said that they have never had to face a debt problem.

Findings like these suggest that consumers remain unmoved by warnings that rates will inevitably rise, resulting in difficult financial situations for most best rate mortgage holders. Stats from the Hoyes, Michalos & Associates survey supports this startling trend; close to 26 percent of respondents said their debt level was higher than it was a year ago. What’s more, 70 percent of respondents said they need immediate help with daily financial matters, including paying down debt and improving their cash flow.

Big changes are happening in the Canadian housing market. Stay on top of changes by following the Mortgage Talk Blog.

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