Canadian home sales fall 17 per cent

Canada’s housing market saw another so-called payback sales drop in February, when the national average home price slumped by five per cent from a year ago, after a surge in sales late last year from homebuyers looking to purchase ahead of this year’s new mortgage rules.

The latest monthly figures from the Canadian Real Estate Association showed that sales volume was down 16.9 per cent in February compared with a year ago, and down 6.5 per cent compared with January.

February’s home sales decline marked the second consecutive month-overmonth decline and the lowest reading in nearly five years, the national association said.

“The drop off in sales activity following the record-breaking peak late last year confirms that many homebuyers moved purchase decisions forward late last year before tighter mortgage rules took effect in January,” said Gregory Klump, CREA’s chief economist in a statement Thursday.

The federal banking regulator’s tougher rules, which took effect Jan. 1, now require a stress test to be applied even to borrowers with more than 20 per cent down payment.

To qualify for federally regulated mortgages, borrowers must be able to afford interest rates that are two percentage points above the contracted rate or the Bank of Canada’s five-year benchmark rate, whichever is higher.

The stricter residential mortgage lending regulations introduced by the Office of the Superintendent of Financial Institutions were aimed at reducing risk in the market amid high housing prices.

CREA’s latest monthly statistics show that home sales were down in February in almost three quarters of all local housing markets tracked by the national association.

The widespread pattern was yet another indication that recent regulatory changes, and not local market conditions, were behind softer sales activity in early 2018, said RBC economist Josh Nye.

“The roller coaster ride that was Canada’s housing market in 2017 has continued this year with resales posting another sizeable decline in February,” he said in a research note.

The number of homes sold nationally hit a record high in December.

But homebuying activity has also since been dampened by the Bank of Canada’s move in January to hike interest rates to 1.25 per cent. The quarterpoint increase was the central bank’s third since last summer, after hikes in July and September.

“While the give-back related to the pull-forward in activity experienced late last year, as buyers rushed to close deals prior to the updated B20 rules, appears to have been largely complete in January, the softness in sales nonetheless persisted this month,” said TD economists Michael Dolega and Rishi Sondhi in a research note.

“We believe that much of it has to do with lingering uncertainty, with additional regulations introduced in the B.C. budget adding further tensions, along with B20 impacts and rising rates.”