National home sales continued to recover in July, rising 1.9%, building on the increases in each of the two previous months. Even so, July’s sales activity remains well below the monthly pace of the past five years (see chart). The sales gains were led by the Greater Toronto Area (GTA) as more than half of all local housing markets reported increased existing home sales.

According to the Toronto Real Estate Board, sales in July were up 6.6% in the GTA on a seasonally-adjusted month-over-month basis on the heels of a 17.6% monthly advance in June.

In contrast, sales in British Columbia (BC) continued to slide. The Real Estate Board of Greater Vancouver reported that July’s residential housing sales skidded to their lowest level for that month¬†in 18 years. Sales fell 14.6% in July compared to the prior month. Moreover, last month’s sales activity was 2.3% lower than the 10-year July sales average. The deep sales slump in the urban areas of BC primarily reflects the market-cooling measures announced in the 2018 BC budget.

Rising interest rates and more stringent stress tests on mortgage applicants continue to be a significant stumbling block for many potential first-time and move-up homebuyers. With additional rate hikes likely in coming months, housing activity in the second half of this year and 2019 will remain well below the booming pace of prior five years.

New Listings

The number of newly listed homes fell 1.2% in July and remained below levels for the month posted in the past eight years. New listings were down in more than half of all local markets, led by Calgary, Edmonton and Greater Vancouver (GVA). Fewer new listings in these markets more than offset an increase in new supply in the GTA.

With sales up and new listings down, the national sales-to-new listings ratio tightened further to reach 55.9% in July. This reading nonetheless remains within short reach of the long-term average of 53.4% for this measure of market balance.  Based on a comparison of the sales-to-new listings ratio with the long-term average, about two-thirds of all local markets were in balanced market territory last month.

Home Prices

On a national basis, the Aggregate Composite MLS Home Price Index (HPI) fell by 0.4% in July from the previous month but rose 2.1% year-over-year (y/y). This was the first acceleration in y/y home price growth since April 2017. It also suggests that the dip in home prices last summer and their subsequent rebound in and around the GTA may contribute to further y/y gains in the months ahead.

Prices in Toronto fell by 0.5% in July from the prior month. In Vancouver, they fell 0.6%. It was the first time since 2013 that benchmark prices in Toronto and Vancouver fell concurrently for two straight months.

Continuing the pattern over the past year, apartment condo units posted the largest y/y price gains in July (+10.1%), followed by townhouse/row units (+4.7%). By contrast, one-storey and two-storey single-family home prices were again down from year-ago levels in July (-0.7% and -1.5% respectively) but the declines were noticeably smaller than in recent months.

Price trends vary widely on a regional basis. Home price gains are diminishing on a y/y basis in the Lower Mainland of British Columbia (GVA: +6.7%; Fraser Valley: +13.8%), Victoria (+8.2%) and elsewhere on Vancouver Island (+13.7%).

Among Golden Horseshoe housing markets tracked by the index, home prices remained above year-ago levels in Guelph (+4.1%) and stabilized in Oakville-Milton (+0.1%). By contrast, home prices remained down on a y/y basis in the GTA (-0.6%) and Barrie and District (-3%).

In the Prairies, benchmark home prices remained down on a y/y basis in Calgary (-1.7%), Edmonton (-1.3%), Regina (-4.8%) and Saskatoon (-2.1%).

Meanwhile, benchmark home prices rose by 7.2% y/y in Ottawa (led by an 8.3% increase in two-storey single-family home prices), by 5.7% in Greater Montreal (led by a 7.0% increase in townhouse/row unit prices) and by 5.0% in Greater Moncton (led by a 9.9% increase in apartment unit prices). (See Table below).

The actual (not seasonally adjusted) national average price for homes sold in July 2018 was just under $481,500, up 1% from the same month last year. This was the first year-over-year increase since January.

The national average price is heavily skewed by sales in the GVA and GTA, two of Canada’s most active and expensive markets. Excluding these two markets from calculations cuts close to $100,000 from the national average price, trimming it to just under $383,000.

Home Prices

Housing markets continue to adjust to regulatory and government tightening as well as to higher mortgage rates. The speculative frenzy has cooled, and multiple bidding situations are no longer commonplace in Toronto and surrounding areas. The housing markets in the GGH appear to have bottomed, and supply constraints may well stem the decline in home prices in coming months. The slowdown in housing markets in the Lower Mainland of BC accelerated last month as the sector continues to reverberate from provincial actions to dampen activity, as well as the broader regulatory changes and higher interest rates.

Since the implementation of new mortgage standards, nonprice lending conditions for mortgages and home equity lines of credit have also tightened. Additional rate hikes by the Bank of Canada are coming this fall, possibly as soon as September, but more likely in October. The economy is running at full capacity, unemployment is low and incomes are rising. Inflation is at the Bank of Canada’s 2% target and uncertainty regarding trade with the US remains, but the central bank will continue to cautiously raise its trend-setting interest rate through the end of next year.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca