Canada’s Housing Market Cooling but Not in Toronto, Vancouver
Canada’s housing market has been cooling, led by Alberta, but Toronto and Vancouver are surging forward fuelled by lower borrowing costs.
Recent trends have seen a red-hot housing market in Alberta along with the big urban markets of Toronto and Vancouver driving the national-level overvaluation. However, Alberta is now driving the weakness in home sales with other metrics of the national housing market slowly following.
The Canadian Real Estate Association (CREA) reported on Tuesday, Feb. 17, national home sales falling 3.1 percent from December to January. This is the second month in a row sales have declined notably.
“The decline in national sales largely reflects weakened activity in Calgary and Edmonton,” said CREA’s chief economist Gregory Klump.
“If these two markets are removed from national totals, combined sales activity remained 1.9 percent above year-ago levels,” he added. Instead, compared to year-ago levels, national sales were down 2.0 percent for January.
The fall in the price of oil has seen Alberta’s housing market take a sharp turn south. Housing inventory has doubled in the last year in Calgary as a result of new listings rising 37 percent and sales falling 39 percent. Edmonton’s inventory in January 2015 is up 35 percent from December 2014.
As a result, CREA’s measure of inventory has risen to a 6.5 months’ supply, the highest since April 2013. The sales-to-new listings ratio fell to 49.7, which is the first time this ratio has been below 50 since December 2012. It’s still in balanced territory, but the trend is clear.
Prices tend to lag sales and this is evident in that Calgary still shows the largest year-over-year price increase for January, at 7.76 percent, with Greater Toronto (7.47 percent) and Greater Vancouver (5.53 percent) following. CREA notes that while year-over-year price gains in Calgary are shrinking, those in Toronto and Vancouver are picking up, however.
The Toronto Real Estate Board (TREB) released mid-month housing figures on Wednesday, Feb. 18, and reported a 14.9 percent increase in the number of sales for the first two weeks of February as compared to the same period last year.
“While home prices are higher compared to this time last year, borrowing costs are lower. Home buyers are still finding affordable options to meet their housing needs,” said TREB president Paul Etherington in the press release.
The average selling price in Toronto for the first half of February was $602,110—a 10.3 percent year-over-year increase. The tight market conditions are approaching seller’s market territory, according to a Feb. 18 BMO special report on the housing market.
Vancouver’s home sales are up 8.7 percent from January 2014 and are nearly 15 percent higher than the 10-year sales average for January.
“While demand remains steady, we’re seeing fewer homes for sale at the moment,” said Ray Harris, president of the Real Estate Board of Greater Vancouver in a Feb. 3 press release. “This is creating greater competition amongst buyers.
Effects of Rate Cut
The lower borrowing costs are seen in five-year fixed-rate mortgages (discounted rates) that are near their lowest levels in recent history (2.59 percent as of Feb. 17), according to data compiled by RateHub.ca.
The big six banks have only lowered their prime rates by 0.15 percent—not the full 0.25 percent by which the Bank of Canada cut its target for the overnight rate on Jan. 21.
The Bank of Canada decision was looking to take out some “insurance” to protect against the weakening macro economy, and the rate cut, a large, blunt tool the central bank can employ, is indeed expected to be beneficial on the whole.
However, some of the adverse effects of the rate cut may start exacerbating the situation in the hot markets of Toronto and Vancouver.
In Alberta, the cut should primarily help support aggregate incomes by reducing borrowing costs and trying to minimize unemployment in the region.
But for Toronto and Vancouver, where job losses due to a specific factor (oil prices dropping) aren’t the concern, the rate cut could mostly boost aggregate borrowing.
It’s a balancing act at the national level with potentially different results regionally.
“We suspect that with borrowing costs still plumbing the depths and many provincial economies holding up, any housing correction will be a specific regional affair,” wrote BMO chief economist Douglas Porter on Feb. 17.
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