Tara Perkins – The Globe and Mail

Canadian home sales are edging back toward the levels they were at before Ottawa decided to tighten the market last summer.

For the first time in a year, the number of homes that changed hands over the Multiple Listing Service last month came in higher than one year earlier, driven by rebounding markets in Vancouver and Toronto.

Comment: Because, for the first time in a year, we were comparing months with similar mortgage rules.

The large gains are partly due to the fact that last month’s sales are being compared with a weaker market. It was in July, 2012, that sales plunged after Finance Minister Jim Flaherty changed the rules, cutting the maximum length of an insured mortgage to 25 years from 30.

Comment: Not really. The new rules came in July 9th, so most of the month had the new rules. Same as June, and the 11 months before that. Let’s see what August brings, then we have no quibble over timing.

But the numbers show momentum nevertheless, and most economists expect sales to gain traction in the coming year.

Comment: For once the economists agree with what is actually happening?

Canada Mortgage and Housing Corp. said Thursday that, because of the weakness during the first half of this year, it forecasts about 448,900 sales of existing homes during 2013, down from 453,372 last year. But it expects sales to rise to about 467,600 units next year, with prices growing at roughly the same rate as inflation.

Royal Bank of Canada economist Robert Hogue said the next major test the market now faces will be in late 2014, when interest rates will likely rise at the same time as a large number of newly built condos come on stream.

Comment: Who can predict mortgage rates 15 months in advance? How about the people closing new condos over the past 13 months, with new mortgage rules since they bought? I know one couple that had to suddenly scramble to make new mortgage arrangements. But no one can predict rates that far into the future, no one.

“We expect that the combination of flattening demand later next year and strong supply of newly completed condo units will lead to some modest price declines in 2014, mostly centred in condo segments,” he wrote in a research note.

Comment: Yeah, heard that the first time in 2003.

While the market appears to be on a modest upward trajectory for the moment, there are some factors that could weigh on it this year. Mortgage rates are likely to trend up. The job market could continue to be worse than expected. And CMHC says that “lower population growth among the 25-to-34-year age group … will moderate growth in the pool of first-time home buyers.”

Comment: Appears to be moving upwards? Appears? Sales up 16% and prices rising for about 17 straight years – that is but an appearance of growth? Sure, some things “could” have an impact, but they also “could not” have an impact. Employment “could” improve, mortgage rates “could” stall or drop, etc… We can all play the if/might/could game all day long.

“Higher mortgage rates of late have led to some erosion in affordability,” Toronto-Dominion Bank economist Sonya Gulati wrote in a research note. “This should keep a lid on sales growth in the second half of the year, but positive annual sales gains are slated for 2014.”

Comment: Right. Mortgage rates started rising last month and now sales jumped 16% and prices are up more than 5%. Sure, higher rates are certainly putting a lid on things.

There also remains the possibility that if the market shows too much of a resurgence, the government will act to rein it in again.

Comment: Like how? What does Flaherty have left in his tool box? Other than a minimum 10% down payment, there is nothing left he can do. Drop amortizations to 20 years? Force banks to raise their rates? Tax mortgage payments?

“Sales dropped sharply in August last year, so we may see some year-over-year increases in sales and average prices next month that would reflect weakness in the rear view mirror,” said Gregory Klump, chief economist of the Canadian Real Estate Association.

Comment: Yes, a lot of the next 12 months’ numbers will look arbitrarily high, as the past 12 months looked arbitrarily low. But we have to keep that all in context. I know I was about the only one to point out the unequal comparison of July 2012 to July 2013 with the preceeding 12 months, but I am sure the media will jump all over it to make sure that the positive numbers are taken down a peg.

“Canadian home sales have staged a bit of a recovery in recent months after having declined in the wake of tightened mortgage rules and lending guidelines last year, but the numbers for July suggest that national activity is levelling off at what might best be described as average levels.”

Comment: Exactly, from the depths back up, now (hopefully) settling down. But I doubt it… we have rises still to come.

Home sales in the first seven months of this year are 4.6% below the first seven months of 2012. The average selling price of existing homes in July was $382,373, up 8.4% from a year earlier. CREA said much of that is because of the resurgence in Vancouver and Toronto, which tend to be pricier markets. The MLS Home Price Index, which attempts to adjust for any change in the type or location of homes that are selling, was up 2.7%. That’s a slightly faster pace than the 2.3% annual increase in June.

Comment: First half home sales appear down because of the mortgage rule change. Now the 2nd half will seem really high for the same reason. But it will all even out, regardless of spin.

“A tightening [though not yet tight] market balance has put a floor under average prices, with 23 of 26 cities posting gains in the past year,” Bank of Montreal economist Robert Kavcic wrote in a research note. Calgary, Winnipeg and Edmonton were among other markets that saw significant year-over-year sales increases last month, while Ottawa, Halifax and Montreal posted declines.

Comment: Come to Toronto, our market is as tight as my belt after a big turkey dinner!

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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