Spring has not sprung for April home sales, list­ings

CREA blames new stress test for miss­ing flurry of ac­tiv­ity typ­i­cal dur­ing sea­son


April home sales dropped to a seven-year low for the month, the kick­off to the busy spring real es­tate sea­son, as both sales and prices saw dou­ble-digit an­nual de­clines, the Cana­dian Real Es­tate As­so­ci­a­tion re­ported Tues­day.

Sales sank 13.9 per cent yearover-year and the na­tional av­er­age sale price dropped by 11.3 per cent year-over-year to just over $495,000. But ex­clud­ing large de­clines in the pricey Van­cou­ver and Toronto markets, the na­tional av­er­age price was down 4.1 per cent to $386,100.

Sales also fell 2.9 per cent be­tween March and April, bring­ing the to­tal num­ber of sales to 36,297.

List­ings with CREA mem­bers fell by 4.8 per cent to 67,616 — a nine-year low for the month — a sign that the flurry of ac­tiv­ity that usu­ally kicks off the spring real es­tate mar­ket didn’t ma­te­ri­al­ize in April. The large de­cline in new list­ings has also helped to keep 60 per cent of lo­cal markets in a bal­ance be­tween buy­ers and sell­ers.

The or­ga­ni­za­tion rep­re­sent­ing about 100,000 real es­tate agents across Canada blamed a new mort­gage stress test that came into ef­fect at the be­gin­ning of this year for the ma­jor­ity of the drop. It has long been crit­i­cal of govern­ment in­ter­ven­tion in the hous­ing mar­ket at both the fed­eral and provincial lev­els.

CREA chief econ­o­mist Gre­gory Klump said the new stress test has low­ered sales ac­tiv­ity and desta­bi­lized mar­ket bal­ance in re­gions where sales were al­ready weak, in­clud­ing Al­berta, Saskatchewan and New­found­land and Labrador.

“This is ex­actly the type of col­lat­eral dam­age that CREA warned the govern­ment about. As prov­inces whose eco­nomic prospects have faced dif­fi­cul­ties be­cause they are closely tied to those of nat­u­ral re­sources, it is puz­zling that the govern­ment would de­scribe the ef­fect of its new pol­icy as in­tended con­se­quences.”

Pol­icy-mak­ers at the Bank of Canada and the fed­eral bank­ing reg­u­la­tor have said the stress test is in­tended to re­duce the risk of mort­gage de­faults if in­ter­est rates rise.

As of Jan. 1, the Of­fice of the Su­per­in­ten­dent of Fi­nan­cial In­sti­tu­tions re­quires buy­ers who don’t need mort­gage in­sur­ance to prove they can make pay­ments at a qual­i­fy­ing rate of the greater of two per­cent­age points higher than the con­trac­tual mort­gage rate or the cen­tral bank’s five-year bench­mark rate.

The new pol­icy re­duces the max­i­mum amount buy­ers will be able to bor­row to buy a home. A sim­i­lar test al­ready ex­isted for bor­row­ers with in­sured mort­gages. They were de­signed to in­sure peo­ple can still af­ford their homes if in­ter­est rates rise sig­nif­i­cantly.

The Bank of Canada has al­ready hiked in­ter­est rates this year and econ­o­mists ex­pect it to do so again at least once or twice be­fore the end of 2018.

Home sales ac­tiv­ity was el­e­vated at the end of 2017 as some home­buy­ers tried to lock in a mort­gage be­fore the new stress test took ef­fect. April’s sales de­cline con­tin­ued a 2018 trend. Sales in the first three months slid to their low­est quar­terly level since early 2014.

Econ­o­mist Nathan Janzen of RBC Eco­nomics said the bank ex­pects most of the im­pact of the new stress tests has been felt.

“The per­sis­tence of soft re­sale data also, though, adds to the ev­i­dence that the cool­ing im­pact on hous­ing ac­tiv­ity could be longer­lived than prior reg­u­la­tory moves,” Janzen added.

TD Bank econ­o­mist Rishi Sondhi called the re­port “dis­ap­point­ing ” and also said the bank ex­pects sev­eral fac­tors will con­tinue to weigh on both sales ac­tiv­ity and con­sumer sen­ti­ment.

“Hav­ing said that, we don’t ex­pect the out­sized de­clines in ac­tiv­ity that were ob­served in the first quar­ter to be re­peated in most places,” Sondhi said.

“Ul­ti­mately, signs of sta­bi­liza­tion should emerge later in the year and into 2019, amid healthy labour markets and on­go­ing pop­u­la­tion growth.”

April sales were down in 60 per cent of all markets, which was “over­whelm­ingly” led by B.C.’s lower main­land and markets in and around On­tario’s Greater Golden Horse­shoe re­gion, CREA said.

That num­ber is well be­low the April av­er­ages for markets in B.C. and On­tario that over­heated last year, caus­ing both prov­inces to spring into ac­tion to cool the sec­tor.


The Cana­dian Real Es­tate As­so­ci­a­tion says the mort­gage stress test has low­ered sales ac­tiv­ity and desta­bi­lized mar­ket bal­ance in re­gions where sales were al­ready weak.

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