February 15, 2011
Data Release: Canadian resale housing market picks up steam in 2011
Canadian existing home sales rose by 4.5% from month-ago levels in January, more than offsetting December’s drop. Home sales have now increased strongly in four of the last five months, recouping almost all of the loses experienced since March of last year. On a year-over-year basis, sales are down 6.6% from January 2010 levels – but that was near the height for the Canadian housing market. The surge in sales was met by a 3.9% gain in new listings. However, the sales activity still outstripped the pace of listings, and the number of months it takes to sell a house fell to 5.5, the lowest level since March 2010. The strength in demand for homes did not translate into higher prices in the month, and existing home prices have remained relatively flat over the last three months. Nonetheless, existing home prices were up 4.5% from year-ago-level. Home sales activity was up in most major cities across Canada with the strongest gains in Toronto and Vancouver. Home sales fell in Calgary and Edmonton.
It was widely expected that sales activity would pick up through January and February of this year as buyers bring purchases forward to beat out tighter mortgage insurance rules that come into effect mid-March. The growth spurt will likely be short-lived, and come at the expense of future sales. As was the case the last time the federal government made mortgage insurance rules more restrictive, the strength in sales will likely be followed by a short period of weak housing data. Furthermore, some of the strength over the last five months can be explained by continued low interest rates –mortgage rates hit an all time low in December. Going forward we still anticipate that interest rates will remain low through the first half of 2011, as we expect the Bank of Canada to start raising interest rates in July of this year. Yet, better-than-expected economic data has increased the likelihood of an earlier rate hike. Markets have started to price in the prospects for rate hikes in with yields on longer-term government bonds up significantly through February. The rise in interest rates is expected to dampen housing activity in the coming months. On the whole, the housing market remains in a well balanced position with little price pressures on the horizon. As such, we expect that beyond March home prices will move mostly sideways.
Diana Petramala, Economist