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This morning, the Canadian Real Estate Association (CREA) released its national real estate statistics for October, which showed a modest uptick in home sales nationally, as new listings ticked up and home prices increased once again. For Canada as a whole, the number of homes trading on the MLS Systems increased 2.0% month-over-month in October–up a bit more than in September–following a four-month downtrend.

Continuing recent performance trends, sales increased again in the Greater Toronto Area (GTA) and environs offset by y-o-y declines in BC’s Lower Mainland. This marked the seventh consecutive monthly decline in sales in BC’s Lower Mainland. The sales decline in BC began even before the August introduction of the new foreign buyers’ tax in Metro Vancouver.

Finance Minister Morneau announced measures to tighten qualifications for fixed rate mortgage loans and to restrict the insurability of these loans in early October. In addition, foreign exemption from capital gains taxes on Canadian real estate were limited to primary residences. It is still too soon to tell how large an effect these initiatives will have in slowing sales and price appreciation.

Another bit of uncertainty has been injected into the Canadian housing market by the surprising results of the US election. The Trump administration is expected to prime the pump with substantial tax cuts and infrastructure spending. As a result, US bond markets have sold off sharply since his election, driving interest rates up sharply. As well, the US Federal Reserve is widely expected to hike the target overnight rate next month. The upward pressure on US interest rates has had ripple effects around the world.

The Canadian five-year government bond yield has risen sharply— from as low as 0.71% one week before the election to 0.96% yesterday. Mortgage rates, priced off of the benchmark five-year yield, are rising commensurately, although as of today, the posted rate remains at 4.64%.  As well, the Canadian dollar has fallen sharply as the Bank of Canada is expected to buck the tide of Fed actions and remain on the sidelines for the foreseeable future.

New Listings Edge Upward

The number of newly listed homes climbed 1.7% in October compared to the prior month. Led by a marked increase in the GTA, new listings increased in about 60% of all local markets. Housing inventory has been in acutely short supply in the GTA. The rise in new listings last month supported a rise in sales in the GTA and nationally.

The national sales-to-new listings ratio at 62.9% in October, compared to 62.4% in September. A ratio in the range of 40%-to-60% is considered generally consistent with balanced housing market conditions. Above 60% is considered a sellers’ market and below 40%, a buyers’ market.

The sales-to-new-listings ratio was above 60% in half of all local housing markets again last month–the vast majority of which continued to be in British Columbia, in and around the Greater Toronto Area and across Southwestern Ontario. Quite importantly, the ratio remained out of sellers’ market territory, down to the mid-50% range in Greater Vancouver, after having begun the year at a whopping 90%.

Number of Months of Inventory

The number of months of inventory is another important measure of the balance between housing supply and demand. It represents the number of months it would take to completely liquidate current inventories at the current rate of sales activity.
There were 4.5 months of inventory on a national basis at the end of October 2016–its lowest level in almost 7 years. The number of months of inventory had been trending lower since early 2015, reflecting increasingly tighter housing markets in Ontario – and, until recently, in B.C.

The number of months of inventory is at a record low in in the Greater Golden Horseshoe of Ontario, ranging between one and two months in Hamilton-Burlington, Oakville-Milton, Kitchener-Waterloo, Brantford, the Niagara Region, Barrie and nearby cottage country. It has slipped to below one month in Mississauga, the Durham Region, Orangeville, Cambridge and Guelph. It stands at about one month in Toronto.

According to Jason Mercer, the Toronto Real Estate Board’s Director of Market Analysis, “Seller’s market conditions continued to prevail as buyers of all home types experienced intense competition in the marketplace. Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments.”

Prices Continue to Rise

The Aggregate Composite MLS House Price Index (HPI) rose 14.6% y-o-y last month, up from 14.4% in September. This price index, unlike those provided by local real estate boards and other data sources, provides the best gauge of price trends because it corrects for changes in the mix of sales activity (between types and sizes of housing) from one month to the next.

Greater Vancouver (+24.8%) and the Fraser Valley (+32.5%) posted the largest y-o-y gains, although single family home prices in both markets are off their peak, having fallen in September as well. This was the first significant decline in this region since late 2012–early evidence that the new foreign tax has had an impact. 

As reported by CREA, double-digit y-o-y percentage price gains were also registered in Greater Toronto (+19.7%), Victoria (+20.1%) and Vancouver Island (+15.8%). All of these gains were up from the prior month.

By contrast, prices were down -4.1% y-o-y in Calgary. Although home prices there have held steady since May, they have remained below year-ago levels since August 2015 and are down 5.1% from the peak reached in January 2015.

Home prices also edged lower by 1.3% y-o-y in Saskatoon. Home prices in Saskatoon have also held below year-ago levels since August 2015.

Meanwhile, home prices posted additional y-o-y gains in Regina (+4.5%), Ottawa (+3.0%), Greater Moncton (+2.8%), and Greater Montreal (+2.6%).

First-Time Homebuyers in Ontario Get Some Relief

In other news, the Ontario Government doubled the tax rebate for first time homebuyers yesterday in the Fall Budget Update. The rebate of land transfer tax will be increased effective January 1 from $2,000 to $4,000. With the average house in the GTA now priced at more than three-quarters of a million dollars, the rebate, even at $4,000, will have only a small impact on affordability. As well, the City of Toronto also offers a tax rebate for new homeowners. It is currently up to $3,725. We will be watching to see if the City follows the Province in hiking its rebate.