Prices dip as the threat of higher mortgage rates disrupts ‘the normal seasonal pattern’
Steve Ladurantaye Real Estate Reporter
Globe and Mail Update
Published on Wednesday, Jun. 16, 2010 9:00AM EDT
Last updated on Wednesday, Jun. 16, 2010 9:57AM EDT
Housing sales slipped in May, as Canada's resale housing market sputtered after more than 18 months of solid gains.
The Canadian Real Estate Association said sales pulled back 9.5 per cent in May compared to April. The average resale price fell 1.27 per cent, to $340,566 from the record $344,968 reached in May. Still, prices are 8.2 per cent higher than they were last May.
After hitting recessionary lows in late 2008, the market had been on a sharp upward climb. CREA said the pullback in sales was “a departure from the normal seasonal pattern,” and attributed the fall to tighter mortgage regulations and the threat of higher mortgage rates.
With the average sale price sitting at record highs, many have also been priced out of the market, especially in the markets that saw the sharpest declines in sales – Ottawa, Toronto and Vancouver.
“May was the first full month in which sales activity was affected by these changes,” said CREA president Georges Pahud.
TD Bank senior economist Pascal Gauthier said prices are likely to fall 7 per cent from current levels by the end of the year.
“The housing market is cooling its jets in response to a number of factors where, on balance, headwinds are becoming stronger than tailwinds,” he wrote. “Erosions in existing home affordability over the previous quarters, mostly due to prices outpacing incomes, are naturally taking a bite out of current sales. While interest rates should continue to rise modestly, affordability should stabilize in the coming quarters as incomes rise and prices come off their peak levels.”
The number of new listings also decreased month-over-month, as fewer Canadians decided to try their luck at making a sale. The 4 per cent decline is the first in eight months, and a signal that the hot market has cooled significantly. Homeowners hoping to cash in on the hot market raced to put their houses up for sale in recent months, but as the market cools less will be tempted.
At the end of May there were 6.1 months of inventory on the market, the highest level since April, 2009. They are still 20 per cent higher than the low reached in August, 2009.
As prices fall, CREA economist Gregory Klump said sales may begin to increase again.
“The number of months of inventory may rise further in response to easing sales activity and a further rise in the number of active listings,” Mr. Klump said. “However, the number of newly listed homes will ultimately retreat in response to a more competitive sales and pricing environment in a number of local markets. The outlook for the Canadian economy, employment, and mortgage market trends remain upbeat, so supply and demand will remain balanced on a national basis. Canada will avoid a U.S.-style home price correction.”