For years Canadian Real Estate has been the unstoppable engine propelling the economy forward. The little engine that could, along with the finance and insurance sector managed to contribute 23% of GDP in 2017. The resulting housing boom has inflated national home prices by 49.68% in just five years per the MLS home price index. However, recent data from the Canadian Real Estate Association suggests the party may be coming to an end.
National home sales fell by 16.9% year over year in February. The decline marked a five year low in activity for the month of February and pushed sales 7% below the ten year average.
“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. “Momentum for home sales activity going into the second quarter is also likely to weighed down by housing market uncertainty in British Columbia, where new housing polices were introduced toward the end of February.”
Price growth appears to be tapering on a national level, despite new listings sinking 6.4% below the ten year average. The Aggregate MLS benchmark price increased by 6.9% year over year in February 2018, the smallest year over year gain since October 2015. It also marked the tenth consecutive deceleration in year over year gains, continuing a trend that began last spring.
The slowdown in homes sales and price growth has put financial regulators on watch. Just last week the Bank of Canada provoked caution on further interest rate hikes citing “Strong housing data in late 2017, and softer data at the beginning of this year, indicate some pulling forward of demand ahead of new mortgage guidelines and other policy measures. It will take some time to fully assess the impact of these, as well as recently announced provincial measures, on housing demand and prices. More broadly, the Bank continues to monitor the economy’s sensitivity to higher interest rates. Notably, household credit growth has decelerated for three consecutive months.”
With RBC senior economist Robert Hogue adding “the notion that the new stress test for uninsured mortgages would slow down Canada’s housing market is getting more and more currency. After a sharp drop in January, home resale activity was weak again in February.”