According to statistics released today by The Canadian Real Estate Association (CREA), national resale housing activity dropped sharply from July to August 2012.
The number of home sales processed through the MLS® Systems of real estate Boards and Associations in Canada fell 5.8 per cent between July and August 2012, marking the largest month-over-month decline since June 2010.
Declines were reported in about two-thirds of all local markets representing 80 per cent of national activity, with monthly sales declines in almost all large urban centres, including Greater Toronto, Greater Montreal, Greater Vancouver, the Fraser Valley, Calgary, Edmonton, and Ottawa. (Chart A)
Actual (not seasonally adjusted) activity was down 8.9 per cent in August 2012 compared to the same month last year. This was the biggest year-over-year drop since April 2011.
“While we always caution that housing market trends at the national level can and do run counter to trends in many local markets, the decline in activity in August was definitely the result of much of the country moving in the same direction,” said CREA President Wayne Moen. “That said, many smaller and more affordable markets bucked the national trend. As always, all real estate is local, so buyers and sellers should speak to their REALTOR® to understand how the housing market is shaping up where they live.”
“August’s sales figures will no doubt provide comfort to policymakers, providing the first clear indication that the recent changes to mortgage regulations aimed at cooling the market are working as intended,” said Gregory Klump, CREA’s Chief Economist. “With previous changes to mortgage regulations, demand rose between the time changes were announced and their implementation, and invariably fell in the months immediately after being implemented, before recovering to long-term levels. By contrast, recent changes to mortgage regulations were in force more quickly after being announced, so home buyers had far less time to react. As a result, demand didn’t pick up just before the changes took effect, while sales declined once they did.”
A total of 334,208 homes have traded hands over Canadian MLS® Systems so far this year. This represents a 2.8 per cent increase compared to levels reported over the first eight months of 2011, and a narrowing of the 4.5 per cent lead for year-to-date sales activity in July.
The number of newly listed homes fell 1.7 per cent in August compared to July. New supply was down in just over half of all local markets in August, but the 7.7 per cent month-over-month decrease in Greater Toronto by far contributed most to the national decline.
With the decline in sales activity outstripping the decrease in new listings, the national housing market was more balanced in August than it had been at any other point in the past two years.
The national sales-to-new listings ratio, a measure of market balance, stood at 51 per cent in August 2012, down from 53.1 per cent in July. Based on a sales-to-new listings ratio of between 40 to 60 per cent, about two-thirds of all local markets were in balanced market territory in August.
Another measure of market balance, the national number of months of inventory, stood at 6.5 months at the end of August. This was up from 6.1 months at the end of July, as the measure rose in between July and August in almost two-thirds of all local markets. The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and is a further measure of the balance between housing supply and demand.
“The broadly based decline in August sales activity suggests that some buyers may no longer qualify for a mortgage now that amortization periods for high ratio mortgages have been shortened,” said Klump. “As the lynchpin of the housing market, lower first-time buying activity will have downstream effects over the rest of the market. While we expect it will likely take more time for move-up buyers to sell their current home, a few more months of data are needed to gauge the broader impact of recent regulatory changes on Canada’s housing market.”
The actual (not seasonally adjusted) national average price for homes sold in August 2012 was $350,192, up three-tenths of one per cent from the same month last year.
The national average price continues to be influenced by compositional factors, most notably by fewer sales in Vancouver this year compared to much stronger levels last year. The result has been a downwardly skewed national average price this year compared to an upwardly skewed average selling price last year.
By way of example, excluding just Greater Vancouver from the national average price calculation yields a year-over-year increase of 3.3 per cent, reflecting the fact that average sale prices were actually up year-on-year in three-quarters of all local markets in August.
Unlike average price, the MLS® Home Price Index (MLS® HPI) is not affected by changes in the mix of sales, providing the best gauge of Canadian home price trends. The index tracks home price trends in five of Canada’s most active housing markets, including Greater Vancouver, the Fraser Valley, Calgary, Greater Toronto, and Montreal. These five markets comprise approximately 45 per cent of all home sales activity in Canada.
The MLS® HPI rose four per cent on a year-over-year basis in August 2012. This was the fourth time in as many months that the year-over-year gain shrank, and marks the slowest rate of increase in over a year.
Year-over-year price growth held steady at 5.6 per cent in August for one-storey single family homes while moderating to 5.2 per cent in the two-storey single family Benchmark housing category.
Prices for townhouse and apartment units continue to see more modest gains, rising 1.7 per cent and 1.8 per cent respectively on a year-over-year basis in August 2012. These were also smaller gains than were seen in July.
The MLS® HPI posted the largest year-over-year increase in Calgary (6.5%), followed by Greater Toronto (6.3%), the Fraser Valley (2.5%), and Montreal (2.2%). In Greater Vancouver, the MLS® HPI posted its first albeit marginal year-over-year decline (-0.5%) in almost three years.