By ZooCasa
Improvements in August Home Sales and Prices Lead to Updated CREA Forecast
Things are looking up for the nation’s housing activity, according to the latest data from the Canadian Real Estate Association. Sales have improved for a sixth consecutive month, with growth noted across Canada. This has led to an update in the board’s forecast, for the rest of the year as well as the next, which includes a rebound in the country’s weakest markets.
With a total of 44,437 transactions, sales have risen 5% year over year. Compared to the market’s low earlier this year in February, there has been a 17% increase. However, it is still around 10% shy of the peak it experienced in 2016-early 2017. The average home price has climbed to $493,000, an increase of 3.9% from 2018. As well, the MLS Home Price index, which is used to measure to overall value of homes sold, also experienced a slight upward shift of 0.9%.
Consistent Growth Into 2020
It is anticipated that with consistent growth in sales, these improvements will continue, with sales set to rise 5% and 7.5% respectively over the next two years as reported by CREA, including in today’s weaker markets; sales are set to increase by a drastic 14.3% in the turbulent British Columbia market and by 5% in Alberta. Stabilization of the national average sale price is forecasted at 0.5% this year, with an increase of 2.1% for an average price of $501,400 in 2020. This is compared to a previously forecasted -0.6% decline for 2019.
Improved Stress Test Chances
The positive growth is dominantly being attributed by CREA to today’s incredibly low interest rate environment. As a result, the criteria for the federal stress test has decreased quite substantially. The Bank of Canada’s five-year benchmark rate, which is used to qualify prospective home buyers for new mortgages, has decreased as a result of the drop in fixed mortgage rates from consumer lenders. Currently, for new mortgages, borrowers must demonstrate that they qualify for either the rate from their lender plus 2 per cent or the benchmark rate, dependent on which is higher.
“The recent marginal decline in the benchmark five-year interest rate used to assess home buyers’ mortgage eligibility, together with lower home prices in some markets, means that some previously sidelined home buyers have returned,” stated Gregory Klump, CREA’s chief economist.
“Even so, the mortgage stress test will continue to limit home buyers’ access to mortgage financing, with the degree to which it further weighs on home sales activity continuing to vary by region.”
Supply Below Long-Term Average
The strongest sales gains for August were seen in Winnipeg, which had a record-setting month. There was also heartening improvement in the Fraser Valley while the most considerable decline in activity was seen in Moncton. There were increases recorded in year-over-year sales in a number of markets such as Winnipeg, Ottawa, Montreal, BC’s Lower Mainland, Calgary and the Greater Toronto Area including MLS listings in Toronto.
There was a rise of 1.1% in the supply of new listings. This left the national sales-to-new listings ratio (SNLR) relatively unchanged at 60.1%, up from 60% in July, leaning towards a sellers’ market. A balanced market is defined by CREA as having an SNLR (the number of sales divided by the number of new listings during the month) of 40-60%. While a percentage above this threshold is indicative of a sellers’ market, a percentage below it is indicative of a buyers’ market. By this standard, three quarters of all markets would be deemed balanced.
At 4.6 months, the months of inventory (which is a measure of how long it would take to liquidate all the homes for sale on the market) is the lowest is has been since December 2017. As well, it is comparatively lower than the long-term average of 5.3 months. This is the result of a split in the inventory levels across Canada as it is higher than normal in the Prairies and Newfoundland and Labrador, and significantly higher than normal in Ontario, Quebec and the Maritimes. British Columbia is “well-centered”, leaving room for the possibility of price stabilization.
Improvements Documented in BC and Prairies
In Vancouver and the Prairies, there has already been a reduction in the price declines that had often been associated with these markets in the medium term. However, they have not yet caught up with the rebound in values which is occurring with sold prices in Toronto, other markets in the Greater Golden Horseshoe and a lot of eastern Canada.
Take a look at the infographic above to see prices in August have changed in country’s major markets: