OTTAWA – Existing-home sales fell 9.5% in May from the previous month as Canada’s housing market began to wind down from near-record activity as new mortgage rules had their first full month in effect.
Sales totalled 37,576 on a seasonally adjusted basis, down from 41,502 in April, largely because of a decline in purchases in Toronto, Vancouver and Ottawa, the Canadian Real Estate Association said yesterday. The all-time high is 45,266 in February 2007.
The number of new listings in May dropped 4% to 76,201 from 79,367, according to the federal agency.
On an unadjusted basis, national sales activity was also down 4.3% in May from a year earlier.
“Life in the fast lane is over for Canada’s housing market,” said Douglas Porter, deputy chief economist at BMO Capital Markets.
Tougher rules in the country’s mortgage market took effect in April. Among the changes, all those looking for home-financing loans must now meet the standards set for five-year, fixed-rate mortgages, even if they are seeking a variable-rate mortgage. The stricter guidelines effectively limit how much people can borrow.
Making the announcement in February, federal Finance Minister Jim Flaherty said the new rules are meant to “help prevent Canadian households from getting overextended” and “have some stabilizing effect on the housing market.”
As well, the Bank of Canada earlier this month became the first Group of Seven central bank to raise interest rates, hiking its benchmark rate to 0.5% from a record low of 0.25%.
And the benchmark five-year, fixed rate for mortgages among Canada’s major banks has risen to 5.99% from 5.25% since late March, after several upward and downward adjustments.
“An accompanying decline in new listings and housing starts means these changes are also affecting the supply side, which will keep the market balanced and Canadian home prices stable,” said CREA president Georges Pahud.
CREA said the decline in May in comparison to April sales was a “departure from the normal seasonal pattern” and proof that people who might have purchased in May pushed their decision ahead by a month because of the mortgage rules and the rising-rate environment.
Still, the national average price of homes rose 8.5% in May from a year earlier, the agency said, but well below double-digit gains over the past year. The year-overyear price gains in April and March were 12.2% and 17.6%, respectively.
“Of course, next to no one will complain about some cooling in prices from the unsustainable trends of late last year and in early 2010,” said Mr. Porter. “Prices are widely expected to simmer down notably in the second half of the year.”
In the coming months, Porter said he expects the housing market to “brake harder, although the ongoing revival in employment will likely keep [it] … from veering onto the shoulder.”