September 23, 2020

CREA Report Suggests Glide, not Freefall, for Canada Housing

By Karen Johnson

Worried that Canada’s housing market is in the midst of a Felix Baumgartner moment?

Sure, year-over-year, existing home sales were down a gut-dropping 15.1%, the Canadian Real Estate Association said Monday.

And while that plunge suggests Canadian housing “is making like Felix Baumgartner (falling past the speed of sound), the details are not nearly as weak, and still suggest that the housing market is simply gliding to a lower altitude,” said Doug Porter, deputy chief economist at BMO Capital Markets.

Existing home sales actually gained altitude, rising 2.5% in September from the month before. It was the first monthly gain since March, and followed a steep 6.2% fall the month before, which economists had blamed on the activation of the federal government’s tougher mortgage restrictions.

Sales have descended from their peaks in most markets across Canada, the CREA data confirmed. And the national average home price was up a slight 1.1% in September from a year earlier, to 355,777 Canadian dollars ($363,594). Home prices remained uneven from market to market. The average price of a home in Toronto, Canada’s largest city, hit a record high of C$509,700, but most other markets were clawing back from recent declines. Overall, the average home price was weighed by slower sales activity in the pricey Vancouver market, where prices are widely believed to have peaked.

“The Canadian housing market has clearly lost some of its luster,” said Francis Fong, economist TD Securities.

Still, continuing demand suggests the bottom hasn’t fallen out of the market. Sales activity accelerated in September from August in about 60% of real-estate markets, led by double-digit gains in the greater Toronto and Vancouver areas.

With lingering worries about overshooting in some markets, few economists say it’s time to take your eye off the horizon.

Policymakers in Ottawa have been closely eying Canada’s hot housing market, concerned about the economic fallout if the market crumbles. The government has tightened mortgage insurance rules four times in four years and the central bank has warned in earnest that interest rates will eventually rise.

Meanwhile, household debt levels in Canada continue to surge, the result of Canadians taking on bigger and bigger mortgages and other debt at record-low interest rates. And that poses a risk to Canada’s housing market and its broader economy, policymakers warn.

Monday, as the latest home-sales figures came out, Statistics Canada reported that Canada’s household credit market debt-to-income ratio hit a new record 163.4% in the second quarter.

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