Canadian housing sales showing‘surprising’ resiliency
Posted on Dec 25, 2013 in Mortgage Market Updates and NewsGarry Marr
Housing sales dipped slightly in November but the expected decline that was supposed to follow consumers rushing to purchase in the fall has failed to materialize.
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The Canadian Real Estate Association said sales last month dropped 0.1% from October on a seasonally adjusted basis while actual activity was up 5.9% in November 2013 from a year earlier.
The theory posited by economists was that the fall market was the beneficiary of consumers taking advantage of low rates negotiated in the summer. Many financial institutions offer consumers pre-approved mortgages, guaranteeing a rate for 90 days, so anybody who wanted to keep their rate needed to pull the trigger on a purchase.
“The bigger picture is how well national sales held up in 2013 amid a torrent of calls for calamity in Canada’s housing market,” said Doug Porter, chief economist with Bank of Montreal. “In contrast to dime-a-dozen doomsday forecasts at the start of 2013, sales for the full year are now on track for a tiny gain, with the first 11 months showing a 0.2% rise from year-ago levels.”
CREA said there was a drop off in the fourth quarter but sales are expected to be up 0.8% this year. In a new forecast, it is now predicting an even stronger rebound with a 3.7% increase in sales.
On the price side, the average sale price is now forecast to reach $382,200 a 5.2% increase for 2013. By next year, prices are forecast to increase 2.3% to an average of $391,100.
Mr. Porter said in a note that it’s becoming “a silent night for the hard landing crowd” even though sales were “simmering down” after the rush to beat higher mortgage rates.
Five-year fixed-rate closed mortgages had dipped as low as 2.99% as banks jostled for market share but they jumped quickly later in the year as bond yields rose. Most major banks are now offering that same mortgage for 3.89% but discounters have started chopping rates again with the site ratesupermarket.ca saying suggested the five-year has dropped to 3.29%.
“Tightened mortgage regulations, combined with the recent increase in the five-year mortgage rate, have affected housing markets differently, depending on their location,” said Laura Leyser, president of CREA.
CREA chief economist Gregory Klump said while interest rates remain relatively low, the Canadian market should remain “well behaved” based on current trends.
“Most housing markets are in balanced territory, including in many large urban centres where sales are below peaks reached earlier this year,” said Mr. Klump.
Nationally sales activity in November was 3.4% below the peak reached in September with some upward pressure on supply based on 1.8% new listings in November versus October.
Don Lawby, the chief executive of Century 21 Canada, agrees that so far the Canadian housing market seems to be holding its own, if no longer taking off.
“The collapse has not happened and it looks like there is a stable market and people are still out there looking for real estate,” said Mr. Lawby.
He suggests the boost the market received from consumers with pre-approved mortgages has long disappeared.
“In my mind what we have now is a very stable market. People have heard this story of a balloon that was going to pop for so long,” said Mr. Lawby. “People carry on as long as their employment carries on. Maybe there is a postal worker out there today not going to buy a house but most people are in a stable environment.”
CIBC deputy chief economist Benjamin Tal said he could see a little bit of negative sales numbers in December or January but concurs that the market is showing more resiliency than many anticipated.
“This market is surprising on the upside. Things should have been more negative if you believe there was nothing else besides special conditions [propping up the market],” said Mr. Tal.