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Actual
(not seasonally adjusted) resale activity was down nearly 14% compared
to April of last year and hit a seven-year low for the month. It also
stood almost 7% below the 10-year average for the month.
Activity
was below year-ago levels in about 60% of all local markets, led
overwhelmingly by the Lower Mainland of British Columbia and by markets
in and around Ontario's Greater Golden Horseshoe (GGH) region.
As
expected, this year's new stress test lowered activity not just in the
red-hot markets, but it has destabilized market balance for housing in
Alberta, Saskatchewan and Newfoundland and Labrador about which CREA
warned the government. As provinces whose economic prospects have faced
difficulties because they are closely tied to those of natural
resources, it is puzzling that the government would describe the effect
of its new policy as intended consequences," said Gregory Klump, CREA's
Chief Economist.
New Listings
The
number of newly listed homes declined 4.8% in April. Having reached a
nine-year low for the month, new listings stood 12% below the 10-year
monthly moving average.
With
sales having fallen by less than new listings, the national
sales-to-new listings ratio firmed slightly to 53.7% in April compared
to 52.6% in March. The long-term average for the measure is 53.4%.
Based on a comparison of the sales-to-new listings ratio with its
long-term average, about 60% of all local markets were in balanced
market territory in April 2018.
The
number of months of inventory is another important measure of the
balance between housing supply and demand. It represents how long it
would take to liquidate existing inventories at the current rate of
sales activity. There were 5.6 months of inventory on a national basis
at the end of April 2018, the highest level since September 2015. The
long-term average for the measure is 5.2 months.
Home Prices
On
a national basis, the Aggregate Composite MLS Home Price Index (HPI)
rose 1.5% year-over-year (y/y) in April 2018. This marks one full year
of decelerating y/y gains. It was also the smallest y/y gain in prices
since October 2009.
Decelerating
y/y home price gains largely reflect trends among GGH housing markets
tracked by the index. Home prices in the region have stabilized and have
begun trending higher on a monthly basis; however, rapid price gains
recorded one year ago have contributed to deteriorating y/y price
comparisons.
Condo
apartment units again posted the most substantial y/y price gains in
April (+14.7%), followed by townhouse/row units (+6.5%). By contrast,
one-storey and two-storey single-family home prices were down (-1.1% and
-4.8% y/y respectively).
Benchmark home prices in April were up from year-ago levels in 9 of the 15 markets tracked by the index.
Composite
benchmark home prices in the Lower Mainland of British Columbia
continue to trend upward after having dipped briefly in the second half
of 2016 (Greater Vancouver (GVA): +14.3% y/y; Fraser Valley: +22.7%
y/y). Apartment and townhouse/row units have been mainly driving this
regional trend while single-family home prices in the GVA have
stabilized. In the Fraser Valley, single-family home prices have now
also begun to rise.
Benchmark home prices continued to rise by about 14% on a y/y basis in Victoria and by about 20% elsewhere on Vancouver Island.
Within
the GGH region, price gains have slowed considerably on a y/y basis but
remain above year-ago levels in Guelph (+5.9%). By contrast, home
prices in the Greater Toronto Area (GTA), Oakville-Milton and Barrie and
District were down from where they stood one year earlier (GTA: -5.2%
y/y; Oakville-Milton: -8.7% y/y; Barrie and District: -8.4% y/y). This
reflects rapid price gains recorded one year ago and masks recent
month-over-month price gains in these markets.
Calgary
and Edmonton benchmark home prices were again little changed on a y/y
basis (Calgary: +0.1% y/y; Edmonton: -0.9% y/y), while prices in Regina
and Saskatoon remained down from year-ago levels (-6.5% y/y and -3.4%
y/y, respectively).
Benchmark
home prices rose by 8.4% y/y in Ottawa (led by a 9.4% increase in
two-storey single-family home prices), by 6.3% in Greater Montreal
(driven by a 7.3% increase in two-storey single-family home prices) and
by 4.2% in Greater Moncton (led by a 5.6% increase in one-storey
single-family home prices). (Table 1).
Bottom Line
Housing
markets continue to adjust to regulatory and government tightening as
well as to higher mortgage rates. The speculative frenzy has cooled, and
multiple bidding situations are no longer commonplace in Toronto and
surrounding areas. Home prices in the detached single-family space will
remain soft for some time, and residential markets are now balanced or
favour buyers across the country. The hottest sector remains condos
where buyers face limited supply.
Owing
to the housing slowdown, a general slowing in the Canadian economy and
significant trade uncertainty, the Bank of Canada will continue to be
cautious. But as inflation trends higher, we expect the Bank to hike
interest rates once again this summer and possibly in the fall as well.
Last
week, the Bank of Canada increased the qualifying (posted five-year
fixed) mortgage rate from 5.14% to 5.34% in response to benchmark
mortgage rate increases at most of the chartered banks. TD bank led the
rate hikes when it increased its posted rate for a five-year fixed
mortgage by a whopping 47 basis points to 5.59% on April 25.
The
central bank qualifying rate is separate from the actual mortgage rates
offered by banks to borrowers but is used to assess homebuyers who are
seeking loans. The higher rates come as an estimated 47% of all existing
mortgages will need to be refinanced in 2018, up from the 25 to 35%
range in a typical year, according to a recent CIBC Capital Markets
report.
A
rise in government bond yields preceded the slew of bank hikes. The
yield on the Government of Canada benchmark five-year bond was 2.25%
this morning, compared to 1.02% a year earlier. Fixed-rate mortgages
tend to move with government bond yields of a similar term, reflecting
the change in borrowing costs.
Competitive
pressure among the banks appears to be heating up as BMO last week
offered what is possibly the largest-ever discount on variable rate
loans. The bank is promoting a variable five-year mortgage at 2.45%, a
full percentage point below its own benchmark rate. This morning, TD
Bank joined is rival in offering a highly discounted variable mortgage
rate effective until the end of the month. Canada's lenders often
provide special spring mortgage rates as homebuying activity picks up.
These moves come amid slowing mortgage growth.
Borrowers still have to qualify based on the much higher Bank of Canada posted rate of 5.34%.
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