Growth in Canada’s housing market in August was modest as the effects of the mortgage stress test continues, although is beginning to fade.
The latest sales data and forecast from the Canadian Real Estate Association released Monday shows a small rise for sales in August, a 0.9% increase month-over-month.
Actual (not seasonally-adjusted) activity was down 3.8% year-over-year while prices nationally increased 1% from a year earlier. Sales activity is weaker than most months over the last 4 years.
"The new stress-test on mortgage applicants implemented earlier this year continues to weigh on national home sales," said CREA President Barb Sukkau. "The degree to which the stress-test continues to sideline home buyers varies depending on location, housing type and price range.”
There were 5.2 months of inventory on a national basis at the end of August 2018, right in line with the long-term average for the measure.
The Aggregate Composite MLS® Home Price Index (MLS® HPI) was up 2.5% y-o-y in August 2018.
The largest y-o-y price gains in August were for apartments (+9.5%), followed by townhouse/row units (+4.3%). But prices for one-storey and two-storey single family homes were little changed on a y-o-y basis in August (+0.4% and -0.4% respectively).
Where the gains were
Around half of all local markets recorded an increase in sales from July to August, led again by the GTA.
TD Economics’ analysis of the data shows the largest gains were in Toronto (+2.2%), Montreal (+2.8%) and Edmonton (+5.4%) while sales were lower in Halifax (-8.2%), London (-1.2%) and Winnipeg (-1.0%).
Activity picked up in several markets in B.C. including 2.9% in Vancouver – the first gain this year – along with the Fraser Valley (+0.6%), Okanagan-Mainline (+1.7%), and Victoria (+2.7%).
“Our view is that sales and prices will continue to grow, but that rising borrowing costs will restrain the pace of expansion. This is particularly true for more expensive markets in Ontario and B.C. where affordability pressures are acute,” TD economist Rishi Sondhi says.
Activity had fallen too far
In his assessment of the CREA data, RBC Economics’ senior economist Robert Hogue says that the figures show that the recent drop in activity was part of the market finding its normal level following B-20.
“The fact that home resales snapped back by 8.1% in the four months since reaching a seven-year low in April tells us that activity had fallen too far. This is typical following a major policy change that pulled some activity forward,” he said.
He added that the latest figures reflect a new, slower phase of recovery.