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This morning, The Canadian Real Estate Association (CREA) released its national real estate statistics for September, 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 0.8% month-over-month in September following a four-month downtrend. National home sales are 5.6% below the record level posted in April 2016.

Housing markets across Canada were pretty much evenly split between sales gains and losses. Continuing recent performance trends, sales increased again in the Greater Toronto Area (GTA) and fell further in and around the Lower Mainland of British Columbia. This marked the sixth consecutive monthly decline in sales in BC’s Lower Mainland, which 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 last week. In addition, foreign exemption from capital gains taxes on Canadian real estate will also be limited to primary residences. There is no doubt that these initiatives will slow mortgage lending and home sales and there is no way of knowing by how much.

According to CREA President Cliff Iverson, “The Finance Minister’s recent changes to regulations affecting mortgage lending has added to housing market uncertainty among buyers and sellers. For first-time home buyers, the stress test for those who need mortgage default insurance will cause them to rethink how much home they can afford to buy.”

“First-time home buyers, particularly in housing markets with a lack of affordable inventory of single family homes, may be priced out of the market by the new regulations that take effect on October 17th,” said Gregory Klump, CREA’s Chief Economist. “First-time home buyers support a cascade of other homes changing hands, making them the linchpin of the housing market. The federal government will no doubt want to monitor the effect of new regulations on the many varied housing markets across Canada and on the economy, particularly given the uncertain outlook for other private sector engines of economic growth.”

New Listings Edge Upward

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 62.1% was little changed from August (61.9%), which is down significantly from the peak reached in May (65.3%). 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 almost half of all local housing markets again last month–virtually all of which continued to be in British Columbia, in and around the Greater Toronto Area and across Southwestern Ontario. Quite importantly, the ratio moved out of sellers’ market territory since August, down to the mid-50% range in Greater Vancouver and the Fraser Valley reflecting the outsized plunge in sales, 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 4.7 months of inventory on a national basis at the end of September 2016. The ratio has been quite stable since April, with the fall in sales in the Lower Mainland offset by a shrinking supply of listings in and around the GTA. 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 Hamilton-Burlington, Oakville-Milton, Guelph, Kitchener-Waterloo, Cambridge, Brantford, the Niagara Region, Barrie and nearby cottage country. Major areas within the GTA have less than one month of inventory, a situation that has been evident for an extended period and is without precedent.

Prices Continue to Rise

The Aggregate Composite MLS House Price Index (HPI) rose 14.4% y-o-y last month, down from 14.7% in August, which was the first deceleration since March 2015. 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 (+28. 2%) and the Fraser Valley (+35.0%) posted the largest y-o-y gains by a wide margin. However, single-family home prices fell in September in Greater Vancouver and the Fraser Valley. 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 (+18.0%), Victoria (+19.4%) and Vancouver Island (+13.9%).

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 4.6% from the peak reached in January 2015.

Home prices also edged lower by 1.2% 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 (+4.9%), Greater Moncton (+4.2%), Ottawa (+2.7%) and Greater Montreal (+2.7%).