Canada Housing Sales Decline Steeply in June -- Update

By Paul Vieira Features Dow Jones Newswires

A cool-down in Canadian housing now appears well under way, with last week's rate rise from the Bank of Canada expected to prolong the slowing trend.

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National resale figures for June from the Canadian Real Estate Association indicate sales fell a seasonally-adjusted 6.7% from May, the steepest decline in seven years. This marked the third straight month-over-month drop in sales, and the second consecutive month transactions declined by over 6%.

On an actual, not seasonally adjusted basis, sales fell 11.4% on a year-over-year basis in June.

Meanwhile, the association's index measuring house prices slowed for a third straight month, climbing 15.8% in June from a year ago, or off from the recent April peak of a nearly 20% advance.

The Ottawa-based association said the results reflect the impact measures from the province of Ontario introduced in April are having to end speculative real estate activity in Toronto and the surrounding area. The measures, chief among them a tax on foreign buyers of residential real estate, "clearly prompted many home buyers in the greater [Toronto] region to take a step back and assess how the housing market absorbs the changes," said Gregory Klump, CREA's chief economist.

A slowdown was expected after the local Toronto real estate board said sales in June fell over 37% from the same year-ago month. In June, the average price for a residence rose 6.3% in a year; in comparison, back in March, the average price rose over 33% in a 12-month period.

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The Bank of Canada raised its benchmark interest rate last week by a quarter-percentage point to 0.75%, and its commentary suggests more rate increases are likely in the offing. Mr. Klump said this too will weigh on national sales in the coming months.

The rate rise "could reinforce a lack of urgency to purchase or, alternatively, move some buyers off the sidelines before their preapproved mortgage rate expires," Mr. Klump said.

Some economists said worries over exuberance in pockets of the Canadian housing market -- most notably Toronto and Vancouver -- reinforced the Bank of Canada's appetite to raise rates amid improving economic data. Bank of Canada Gov. Stephen Poloz said last week the rate increase would help reinforce nonrate tools implemented by federal and provincial authorities to date to curb borrowing, and keep housing prices in check.

Canadian households are carrying record levels of debt, with borrowing climbing at a roughly 6% pace from a year ago. Most of that debt is held in mortgages and drawdowns on home equity lines of credit.

"The Canadian housing market is now in its third month of what is expected to be a soft landing. The weakness was triggered by changes to provincial and federal housing policy, but it will ultimately be higher interest rates that help solidify it," said Diana Petramala, economist at TD Bank, in a note to clients. The bank's economics team projects existing home prices in Canada to decline 2.1% in 2018, with the bulk of the softness concentrated in the overheated Toronto and Vancouver markets.

On an average-price basis, the cost of buying a home in Canada in June edged 0.4% upward to 504,000 Canadian dollars ($400,000) -- although when the Toronto and Vancouver markets are excluded, the average price comes in just shy of C$400,000.

While the slowdown in Toronto and area sales pulled down the national real estate activity. CREA said half of all local housing markets recorded year-over-year sales declines.

The number of newly listed homes slid 1.5% in June, led by a sizable pullback in the Toronto region compared with record levels in April and May. The national sales-to-new listings ratio now stands at 52.8%, or down from the high-60% range just three months earlier. A sales-to-new listings ratio between 40% and 60% is consistent with balanced housing market conditions, the association said.

Write to Paul Vieira at

(END) Dow Jones Newswires

July 17, 2017 11:29 ET (15:29 GMT)