Now may not be time for brokers to take their foot off the gas, with rising home sales in June likely to zap the strength of the fall market, according to one economist, reflecting on interest rates.
“Increases in mortgage interest rates likely prompted some buyers with pre-approved mortgages to jump off the sidelines and into the market in June, particularly in larger, more expensive urban markets where affordability is strained,” says Gregory Klump, CREA's chief economist. “We have seen this happen before. If fixed mortgage rates continue holding where they are or edge slightly higher, sales may ebb over the summer and early autumn, with slightly higher borrowing costs picking up where the finance minister left off last year to keep the housing market in check.”
The usually strong spring market didn’t materialize for mortgage brokers; but June’s optimistic numbers show that consumer interest in the renewing and buying before rates climb higher may be burning as hot as July temperatures. But that could fizzle come the fall if rates continue to rise.
CREA’s latest numbers show home sales are up 3.3 per cent compared to May, but remain down 0.6 per cent compared to the same month a year ago. According to the Senior Economist for BMO Robert Kavcic, it is confirmation that predictions of a housing crash from the doom and gloom prophets are wrong.
"These figures represent another body blow to the Canadian housing bears," said Kavcic. "The June report leaves the second-quarter tally at an impressive 6.4 per cent above the previous quarter - the strongest performance since 2010. In fact, sales are now back to levels seen before the latest round of mortgage rule tightening took effect in early July, helped by very low mortgage rates through much of the spring."
Credit for the recovery and stabilization in the housing sector has been given in part to Finance Minister Jim Flaherty
, and his tightening of the mortgage rules – the latest coming a year ago to reduce the amortization period. Many believe his actions helped to stop the housing market from overheating, or even forming a U.S.-style housing bubble that could have crashed the market.
Despite the recent optimism, the major urban markets still show sluggishness. On year-over-year comparisons Toronto and Montreal were down for June, while Vancouver, Edmonton and Calgary were up for the same month.
“For the second month in a row, sales improved in the majority of local markets,” says CREA President Laura Leyser. “Whether those gains reflect temporary factors or a fundamental improvement after a slow start to the year really depends on where you are.”
Despite the overall dip in sales from June 2012, the national average sale price rose 4.8 per cent compared to a year ago. The number of newly listed homes was down 0.5 per cent from May to June.
“Just as declines in the national average price at this time last year reflected a drop in sales activity in some of Canada's most expensive housing markets, much of the increase in the national average price in May and June can be attributed to recovering demand in those same markets, particularly Greater Vancouver,” says Klump. “A better gauge of what's going on with prices is the MLS Home Price Index, which is not affected by changes in the mix of sales the way the average price is. The index shows year-over-year price growth stabilizing at a rate barely ahead of inflation.”
To date, CREA numbers show that total home sales throughout Canada have dropped 6.9 per cent so far this year, compared to 2012.