Canadian existing home sales fell 3.2 per cent month-over-month in October according to a report published on Friday by the Canadian Real Estate Association (CREA).
While this marked the first drop in resales since February 2013 and the largest monthly decline since the slowdown in summer 2012, sales still stood 8.3 per cent above 2012 levels.
Canada’s banks were quick to release briefings on the CREA report and, while each added its own slant, a consensus that a major housing correction was not in the cards emerged yet again.
“Looking past some of the wild swings (and the wilder headlines) seen in the past year, the broader trends in the Canadian housing market are surprisingly calm,” wrote BMO’s Chief Economist Douglas Porter. (Tweet this)
“With total sales basically flat versus a year ago so far in 2013 and almost every city sporting a modest, single digit price gain, we can only ask: Where’s the fire?”
Porter went on to comment that the moderation in national sales in October from the hot September numbers indicate underlying market conditions remain balanced.
Derek Holt and Dov Zigler, economists with Scotiabank, pointed out that while a single month of declining sales doesn’t make a trend, it does put “an end to the uninterrupted seven month string of sales gains since March.”
Holt and Zigler also wrote that the decline “would feed into our view that sales rose over the spring and summer at the expense of future months as people exercised options to purchase within 90-120 day mortgage rate commitments on fears of losing the juicy rate commitments back in the spring.”
The bottom line? The strong sales activity in spring and summer 2013 was a temporary interruption along a correcting sales path.
TD Economics’ Francis Fong shared Holt and Zigler’s view, as he wrote that “the resurgence in sales activity over the course of this year was likely driven by a frontloading of demand by borrowers with mortgage preapprovals jumping into the market to get ahead of the deterioration in affordability we have seen since May.”
Fong added that he is not anticipating a major housing correction and believes that several fundamental supports should continue to keep the market stable. (Tweet this)
Looking ahead to 2014, RBC Economics’ Robert Hogue wrote that Canadian resale activity will remain largely static overall. He also noted that demand will continue to be supported by positive employment trends, steady population growth and historically low levels of interest rates.
Hogue singled out condo construction in Canada’s largest markets as a source of concern, but was unconvinced that it would have a negative impact on Canadian housing.
“[T]he evidence to date suggests that these units are being mostly absorbed and, therefore, are unlikely to have a destabilizing effect,” he wrote. “We expect that the combination of flattening demand later next year and strong supply of newly completed condo units will rein in price increases in 2014.”
By: Sean MacKay November 18, 2013
Photo: J.L. Trinh/Flickr