Canadian sales of existing homes rose in August, the first month-over-month increase since March, but activity remains well below levels reached before taxes were introduced to cool down price gains and speculative behavior in the Toronto-area market.
Still, the Canadian Real Estate Association cut its home-sales forecast for this year and next, reflecting a government crackdown on foreign buyers, tighter mortgage-financing rules and a rise in interest rates.
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The figures and adjusted forecast will lend credence to projections that real estate will pivot from being a significant driver of economic growth to weighing on overall activity.
The Ottawa-based association said the number of homes sold on a seasonally-adjusted basis rose 1.3% in August from the previous month. On an actual, or nonadjusted basis, sales declined 9.9% from August of last year.
(The real estate group presents its month-over-month figures on a seasonally-adjusted basis, to reflect the changes in house-buying patterns through the year.)
A rebound in sales in the greater Toronto area helped lift the August results. Excluding the Torotno-area market, national sales were largely unchanged from the prior month, the group said.
Even with the bump up in August, sales activity of existing homes remained nearly 14% below a record set in March. In April, authorities in Canada's most populous province, Ontario, introduced a series of measures aimed at cooling elevated house-price gains in the Toronto-area market and surrounding exurbs -- chief among them a tax on foreign buyers of residential real estate.
"After a few very difficult months for the Toronto market, the August data suggest the worst may have passed, though what comes next remains a question mark," said Benjamin Reitzes, senior economist at BMO Capital Markets. "The Bank of Canada's rate hikes should help contain any renewed exuberance, but if things do heat up again, expect policy makers to step in before too long."
The number of newly listed homes slid a further 3.9% in August, marking a third consecutive monthly decline. The association's benchmark price rose 11.2% from a year ago, but that reflects further deceleration from a peak of nearly 20% earlier in 2017.
The cooling in real estate following the introduction of new rules in Ontario was reflected in recent data measuring Canada's gross domestic product. The Canadian economy grew 4.5% annualized in the second quarter on exports, although total investment in resident structures fell 4.7%.
CREA, which represents the country's real-estate agents, now expects sales activity to hit 506,900 units in 2017, or a decline of 5.3% from its second-quarter outlook. It said the decline stems almost entirely from the downward revision to the forecast Ontario home sales. In 2018, the group expects another decline in sales, to 495,100 units, or a 2.3% decrease from its previous forecast.
The downward revision was fueled by changes to Ontario's housing policies and higher interest rates. There is also the possibility of further tightening in mortgage-financing rules, as Canada's bank regulator is considering measures that would compel lenders to put all prospective home buyers -- regardless of how much of a down payment they can make -- to undergo a stress test before a mortgage could be issued.
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(END) Dow Jones Newswires
September 15, 2017 11:22 ET (15:22 GMT)