Canadian home resales dipped last month for the first time since February in what many see as a signal that a so-called correction in the housing market remains in place.
The Canadian Real Estate Association reported Friday that the number of transactions fell 3.2 per cent in October from September on a seasonally adjusted basis.
That still leaves an 8.3 per cent increase from October 2012, when sales were dipping following to a tightening of federal mortgage rules in July of that year.
The association’s national home price index also rose 3.52 per cent from October 2012 and the national average price for homes sold in October was $391,820, up 8.5 per cent from a year earlier.
October’s greater-than-expected decline in sales volume comes on the heels of Statistics Canada’s report on Thursday that prices of new homes, as opposed to sales of existing homes, were flat in September, breaking a streak of 29 months of consecutive increases.
Analysts say the monthly results, while only a snap-shot, suggest that the underlying market is soft and that fears of a bubble, voiced during the summer’s strong housing rally, were exaggerated.
“No correction ever goes in a nice neat straight line, and I think the last six months or so (of growth) were an aberration,” said Derek Holt, vice president of economics with Scotia Capital.
Holt noted that mortgage and total household credit growth is the weakest since the 1990s.
“I think what we’re seeing is the first-time homebuyer is being squeezed by tighter mortgage rules and high prices. If it were the first-time homebuyers driving the housing strength in the spring and summer months, you might expect to see a renewal in upward trend in debt growth as new entrants take on debt for the first time. It’s just not happening.”
CREA chief economist Gregory Klump also said that October’s month-over-month dip was evidence that the recent sales spurt came largely from homebuyers with pre-approved mortgages jumping into the market before rates headed higher — the so-called pushing sales forward phenomenon.
It’s what the Bank of Canada and Finance Minister Jim Flaherty had hoped was occurring, although the finance minister repeated this week that he was ready to jump in once more if the warming trend continued.
Toronto, Vancouver and Calgary were responsible for much of the increase in the national home price last month. If the they were taken out of the equation, the average price was up 4.9 per cent rather than 8.5 per cent.
Some analysts believe with prices so high, particularly in comparison to the U.S. — where the medium price is just under US$200,000 — that Canada may be due for a sharp correction in prices.
But that scenario has yet to materialize. Soft-landing proponents argue that the two markets are very different because regulations in Canada require a greater degree of equity held by homoeowners, high-leverage purchases must be insured, and financial institutions are more prudent in their lending practices.
Bank of Montreal chief economist Doug Porter points out that prognostications of “doom” at the start of 2013 have yet to pan out.
“Precisely one of the 26 largest cities in the country have reported a drop in average prices so far this year — Victoria, with a minuscule 0.1 per cent sag,” he said. “Looking past some of the wild sings seen in the past year, the broader trends in the Canadian housing market are surprisingly calm.”
Holt also believes the trend will be for continued calm. With talk of stimulus withdrawal in the U.S. likely to build over the winter, the outlook is for fixed mortgage rates to start firming again, which should keep first-time homebuyers on the sidelines, he said.
In October’s report from CREA, the hottest markets in Canada so far in 2013 were Calgary, Edmonton and Vancouver when judged by total sales volumes, which measures both prince increases and units sold.
On the flip side, the coldest markets were in Quebec City, Saguenay and Halifax, all registering double-digit declines.