Data Release: Housing activity stalls in August
- Canadian existing home sales were effectively flat in August, declining by a marginal 0.5%. On a year-over-year basis, sales are up by almost 16%. However, this mostly reflects the fact that sales were extremely weak last August; sales are actually down by more than 5% since January.
- Price activity was also flat on the month. Average prices rose by just one-tenth of a percentage point, but are up by almost 8% on a year-over-year basis.
- Like a broken record, new listings also did not move in August, leading to a sales-to-new-listings ratio identical to July of 51.6. The Canadian Real Estate Association is reporting that 70% of all local markets in Canada were in balanced market territory.
- The market continued to be supported by the Toronto market as sales were up a healthy 2.1% from July (24% Y/Y) and are now at their highest level since April 2010. Similarly, the average price of a home in the GTA rose by 0.6% to its highest level on record. On the other side of the country, Vancouver sales were down 2.5% in August, while the average price was left unchanged.
- A combination of the recent slowdown in economic activity (culminating in the first contraction in output since early 2009), the recent implementation of new mortgage lending rules in March, and the high level of household indebtedness has been instrumental in slowing housing activity since the beginning of the year. And looking ahead, less favourable economic fundamentals and heightened financial uncertainty are likely to take more wind out of the market’s sails.
- Ultimately, TD Economics expects a peak-to-trough decline in both home sales and prices of roughly 10% from current levels.
- However, the outlook for interest rates is critical to the timing of this adjustment. TD Economics anticipates the Bank of Canada to remain on hold until the first quarter of 2013.
- This implies that affordability will remain supported in the near term. Housing activity will likely moderate further in the coming months, but will oscillate alongside the rest of the economy until the end of 2012. The aforementioned adjustment in housing market activity will likely not happen until rate hikes begin in earnest in early-2013.
Francis Fong, Economist
Obviously this has not been a banner year for Real Estate, but remember the underlying fundamentals of the Western provincial economies and particularly the Alberta economy remain strong.
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- Canadian 5 yr bond yields markets +2bps to 1.49. The spread (based on the 5 yr rate published rate of 3.59%) is above the comfort zone at 2.10. The spread based on the 5yr quick close rate of 3.39% is at the top end of the comfort zone at 1.90 The uncertainty in the bond market is forcing a wider than normal margin until investors see some stability return http://www.tmxmoney.com/HttpController?GetPage=BondsAndRates&Language=en The rate of return on your bond, can be read through a yield curve, If the increase in bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise. 1.75 and 1.95