October dip in home sales ‘softer than expected’ — does slowdown loom?
The pace of home sales dipped in October compared to a month earlier, while prices saw their upward trajectory scaled back a touch according to one index reading.
The $391,000 question is whether a month-to-month dip of 3.2 per cent in resale activity and a cooling of home price appreciation are indicative of a looming slowdown, or represent a one-off soft patch in an otherwise hot housing market.
“In our view, it is likely the former,” Francis Fong, a housing economist at TD Bank said in a research note Friday after the Canadian Real Estate Association released its monthly figures.
The year-over-year numbers comparing last month to October 2012 do show a sharp rebound in sales and prices, with each gaining north of 8 per cent versus last October, which has pushed the average price of a home now to $391,820.
Those gains are in line with the trend since May showing a busy market place that’s recovered from tighter lending rules implemented by Ottawa last year and is continuing to take advantage of super low interest rates while they last.
The summer bump in interest rates in fact quickened the pace of sales, market watchers say. But now, with affordability stretched markedly in many cities, some suggest the housing market is in for a potentially prolonged cooling off period.
“The resurgence in sales activity over the course of this year was likely driven by a frontloading of demand by borrowers with mortgage preapprovals jumping into the market to get ahead of the deterioration in affordability,” Fong said.
“Today’s report likely provides early evidence that the 60-70 basis point increase in interest rates since the summer is finally catching up to sales activity.”
The October lull supports the industry’s position that there’s no need for further intervention in the residential real estate market from Finance Minister Jim Flaherty, who moved last summer to impose stricter lending requirements.
Flaherty has tightened lending standards four times in recent years to tame a potential property bubble forming as a result of ultra low interest rates. The minister said this week he remains watchful.
“While the finance minister will no doubt continue to keep a close eye on Canadian housing markets for signs of overheating as interest rates remain low, October sales results may provide him with reassurance that tightened mortgage regulations and lending guidelines are working as intended,” Gregory Klump, chief economist at CREA said in a release.
Regionally, sales in Vancouver were up 37 per cent compared to last October, while in Toronto – the other major market that’s a focus for signs of overheating — the number of homes changing hands rose 18 per cent year over year.
But on a monthly basis, sales and prices fell in the country’s two priciest markets.
October sales in Vancouver were 10 per cent lower than in September, and in Toronto, they declined 5 per cent. Prices were down 2.4 per cent and 0.4 per cent in Vancouver and Toronto, respectively.
Cities in Quebec and the Atlantic Canada experienced a bigger slowdown in October than cities in Western Canada, BMO chief economist Doug Porter said. While smaller cities generally saw activity fall more than in larger centers.
In all, a month-to-month pullback was experienced in more than half of all markets tracked by CREA in October.
“This is somewhat softer than expected,” Porter said, noting that numbers “hint that activity is indeed simmering down slightly after an initial rush to beat higher mortgage rates.”