Sales of existing homes in Canada fell sharply in May from the prior month, recording the biggest decline in nearly five years, reflecting measures introduced in the province of Ontario that appear to have "squelched" speculation and rapid price gains in the Toronto market.
The Canadian Real Estate Association, which represents Canadian real-estate agents, said sales fell 6.2% in May from April. It marked the largest one-month decrease since August 2012. Sales decreased in about half of all local markets tracked, with a sizable 25% drop in the greater Toronto area, and similar steep declines in surrounding urban centers in southern Ontario.
On a year-over-year basis, resale activity in May fell 1.6%.
The association added a closely watched gauge suggested Canada's housing market moved into balanced territory for the first time since late 2015. The national sales-to-new listings ratio stood at 56.3% in May, down from 60.2% in April and the high-60% range over the first three months of this year. A sales-to-new listings ratio above 60% indicates a sellers' market, the industry group noted.
The CREA report marked the first full month of real estate activity under new rules introduced by the province of Ontario, Canada's most populous province, aimed at cooling a frothy real-estate market and demand from foreign investors. Key among the measures was a tax on foreigners acquiring residential real estate, and ability by municipalities to levy taxes on vacant homes.
The May report "suggests the changes have squelched speculative home purchases," said Gregory Klump, CREA's chief economist.
On eight occasions starting in 2008, federal and provincial authorities in Canada have introduced measures to tamp down housing exuberance. Housing has been a crucial growth engine for the country in recent years amid slumping commodity prices and a lackluster export performance, and TD Bank estimates that over a third of Canadian economic output since 2014 is tied to real estate.
Diana Petramala, economist at TD Bank, said the Ontario regulations have showed initial success and "kicked off what is expected to be a soft landing" in the Toronto market and its surrounding exurbs. She added the prospect of higher interest rates -- with the Bank of Canada signaling this week it's prepared to remove stimulus -- will limit any rebound in Ontario, and cause a recovery under way in Vancouver, British Columbia, to fizzle out.
In its most recent review of the financial system, the Bank of Canada warned frothy real-estate markets -- with up until recently price gains of 30% or more in Toronto on a one-year basis -- posed a material threat to financial stability. It said in Toronto, price growth "has been too fast for normal market activities."
The real estate association said the national average price for homes sold in May was 530,304 Canadian dollars ($401.471), up 4.3% from one year earlier but a slowdown from the 10.4% annual gain recorded in the previous month. Prices continue to be lifted by the country's most active and expensive housing markets of Vancouver and Toronto. Excluding those two markets reduces the average price by more than C$130,000, CREA said.
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(END) Dow Jones Newswires
June 15, 2017 12:05 ET (16:05 GMT)