Mortgage Rules Take Wind Out of House Sales
The Canadian Real Estate Association blamed new mortgage rules for taking first-time buyers out of the market, as it reported sales slipped 14 per cent in April from a year ago.
The new rules brought in by the federal government, which took effect at the end of March, eliminated 35-year amortizations as a financing option. The trade association said that likely caused people to beat the change as they looked to lock in lower monthly payments.
“Changes to mortgage regulations that took effect in April, 2011, likely sidelined a number of first-time home buyers,” said Gregory Klump, the association’s chief economist.
CREA said seasonally adjusted sales activity decreased 4.4 per cent in April from March. The declines were largest in the more expensive markets such as Toronto and Vancouver.
The national average price for homes sold in April 2011 was $372,544, up 8 per cent from the same month last year. That’s a slight gain of 0.33 per cent from March’s $371,286.
The association said comparisons with April, 2010, are difficult because of “several transitory factors artificially boosting sales” in that month.
“This included the impending tightening of mortgage rules, speculation about higher interest rates and the looming introduction of the HST in some provinces. This year, additional measures to tighten mortgage rules were implemented in March and the other transitory factors were absent,” Mr. Klump said. “This makes it difficult to compare the two months in order to reliably gauge the impact of the latest round of mortgage rule changes.”
BMO Nesbitt Burns economist Robert Kavcic said that once the one-time distortions are taken out of the equation, the pace of sales and the price gains are running close to the historical average.
“These statistics exaggerate the year-over-year declines,” he said. “The market is very balanced, once you smooth things out. If you look at sales versus new listings, we’re bang on the long-run average for Canada right now.”
That ratio stood at 56.5 per cent in March, which is considered balanced territory by economists because the balance of buyers and sellers is fairly equal.
“Based on [the ratio], more than half of local markets in Canada could be considered balanced in March, with two-thirds of the remaining markets considered to be as sellers’ markets,” CREA said.
Meanwhile, the number of houses for sale remained unchanged in April, at 5.6 months. That’s how long it would take to sell all of the houses, at the current rate of sales.
“Almost half of all local markets saw the number of months of inventory shrink compared to the previous month,” CREA said.
The report of slower sales comes about a week after the association raised its annual forecast for 2011, saying strength in Vancouver would buttress the national average sale price and that sales across the country have been stronger than expected.
The association said the average national resale price will gain 4 per cent by the end of the year because of high prices in Vancouver. CREA also added that sales would also be stronger than it expected in 2011, although still slower than 2010.