Not surprisingly, Canadian home sales fell again in November, marking the fourth consecutive month this segment has seen a decline. There’s little question at this point as to whether or not the recent drops have been due to the mortgage rules that went into effect this past summer. The only question now remaining is: how long will sales continue to decline?
According to the Canadian Real Estate Association, November home sales dropped by 1.7 per cent with a seasonal adjustment, when compared with the month prior. Not accounting for seasonal adjustment, the drop was actually much bigger, with an 11.9 per cent decline.
If there was anyone that didn’t think the latest mortgage rule changes wouldn’t effect the housing market that greatly, it’s an impossible point to argue now. And CREA even believes so.
In its report to go along with the stats, the Association also reported, “Demand geared down in August in the wake of the tightening mortgage lending rules, and has since been running about 8 per cent below levels in the first half of the year.”
But for just how long will the effects be felt?
Derek Holt, Scotiabank economist, thinks that we’ll be living with them well into next year. “The country is at frothy all-time highs for every measure of activity in housing markets and consumer spending, and pro-cyclical housing finance policy that eased too much in 2006-2007 has given way to regulatory over-tightening with further lagged negative effects ahead of us,” he says.
But Mazen Issa, Canada Macro Strategist at TD Securities, says that you need to look at market history soon after these types of mortgage changes to get a better idea of what it will do.
“It remains in the early days to judge whether or not sales activity will remain subdued but with the Bank of Canada expected to remain lower for longer – we anticipate that the overnight rate will move higher in Q4 of next year – there is some limit to the downside in sales,” Isaa said.
CREA’s report also indicated that home prices were down by 0.8 per cent when compared with November of last year. This is a new trend, as prices continued to climb up even during the first couple of months after the new rules went into effect. Fortunately for those buyers that were waiting on the sidelines until prices started to soften, this is a trend that’s likely going to continue for at least the next several months.
