A Closer Look At Your Neighbourhood’s Housing Market

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The elusive soft landing has finally hit ground in Canada, as the latest reports from the Real Estate Association show a decrease in year-over-year sales. The real estate group found that sales were down 0.1% in October from September. Actual sales for October (without the seasonal adjustment) were down 0.8% from a year ago.

While not unexpected (a housing slowdown has been anticipated since the government tightened mortgage rules back in June) experts are worried that the changes to the regulatory system may have a bigger impact than originally expected. 

While the first half of the year was characterized by modest sales and price gains, the second half of 2012 has headed in the exact opposite direction. More stringent mortgage rules and tighter underwriting requirements have purposely slowed down the market’s growth.

How Things Look From Coast to Coast

The Bank of Montreal recently released their local housing market scorecard, providing a clearer view of how mortgage rules are impacting various regions. Here’s a quick overview of what’s happening (source: BMO EconoFacts):

Vancouver: Seller be-aware… There’s little doubt that Vancouver faces some of Canada’s least favourable market conditions, with the sales-to-new listings ratio averaging less than 39% in the latest 3 months, near the lowest since the financial crisis. Sales have plunged 27% y/y in the latest 3 months, while the MLS Home Price Index was below year-ago levels in October. Prices have slipped almost 3% in the last 6 months. Despite softer prices, they remain about 10x estimated family income, by far the loftiest valuations in Canada.

Calgary: Back in the saddle… Strong population and income growth are supporting demand, with sales up almost 20% y/y in the latest 3 months. This has helped draw down the excess supply built up during the prior boom—the market is now close to full-scale sellers’ territory. As a result, prices measured by the MLS HPI were up a solid 6.7% y/y in October, though affordability is still favourable relative to Toronto and Vancouver, with prices little more than 4x median income.

Toronto: Condos cooling…  Activity has softened significantly since mortgage rules were tightened in early July, leaving sales down 16% y/y in the past 3 months. While the market is still technically balanced by our definition, it is now leaning distinctly in favour of buyers. That said, MLS index prices were still up a solid 5%y/y in October, but a stark divide remains between scarce detached homes (+6.5% y/y) and more amply-supplied condos (+1.1% y/y, but down 1.2% since June). Note that some cities in Southwestern Ontario are seeing sellers’ markets amid a dearth of supply (even as sales sag).

Atlantic Canada: Mixed… New Brunswick faces stiff economic headwinds, and the Saint John market remains decidedly in buyers’ territory. Meantime, the Halifax market, while softening somewhat in recent months, remains relatively healthy amid optimism over the Federal shipbuilding contract.”

While the landing has been soft thus far, economists are more concerned with how the market will rebound come next spring. Mortgage brokers and specialists worry that the low interest rate environment might not be enough to pull homeowners back onto the market. If good mortgage rates are able to entice more sales, it’s still safe to say that the probability of big price gains are relatively low.

As of the end of October a total of 402,322 homes had been sold via the Canadian MLS system. That’s an increase of 0.8 percent from the same period last year and a 0.4 percent decrease over the 10-year average for the period.

The number of new listing was also down last month following a jump in September. What’s more, monthly declines were reported in close to two-thirds of the nation’s real estate markets, including Toronto and Vancouver.

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