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New mortgage rules cool home sales: Conference Board report

October 31, 2012 - Updated: October 31, 2012

 

OTTAWA . Canada's housing market appears to be cooling across the board in the face of tighter mortgage rules that affect many first-time buyers of modest means, a new analysis from the Conference Board shows.

The think-tank's snapshot of resales for August shows a widespread decline in sales of existing homes, with 21 of 28 metropolitan markets registering a drop from July, and 16 of the markets showing a falloff of 5% or more.

The Conference Board's findings come as data show Toronto new-home sales plummeting. The Building Industry and Land Development Association reported 1,242 homes sold in August, down from 3,496 a year earlier and the lowest figure for monthly sales since 2009.

It's a trend that appears to be spreading across the country. Listings fell in 17 of the 28 markets, an indication that owners were reluctant to place their homes for sale due to soft conditions.

Senior economist Robin Wiebe of the Conference Board said there was evidence of cooling in some markets - particularly Vancouver and Victoria - before the new rules went into effect July 9. But the new data show the slowdown has spread to most markets and from coast to coast.

"When you see sales down in three-quarters of the market, that means it's pretty widespread," he said. "It's knocked previously high-flying markets like Regina and Saskatoon down a peg. Vancouver had been showing signs of cooling, now it's spread out into the Fraser Valley."

At the time Finance Minister Jim Flaherty announced the maximum amortization period for mortgages would be reduced to 25 years from 30 years, the government estimated it would increase monthly payments by $184 on a $350,000 mortgage.

It had been the fourth time Mr. Flaherty tightened mortgage requirements in four years, but the July measure was regarded as the one likely to be the most effective.

While sales and prices were only temporarily sidetracked by the previous announcements, only to recover a few months later, this might "be the one that broke the camel's back," Mr. Wiebe said.

Last week, the Canadian Real Estate Association reported that sales of existing homes fell 5.8% in August from July, and were down 8.9% from August 2011.

Still, the latest data show that while sales and listings are down, prices appear to be holding steady.

The report found prices fell in only nine of the 28 markets in August from the previous month. Compared to last August, prices were up in 25 markets.

Homes in the Toronto area, Canada's largest market, are also likely to retain their value, he said, because the economy in the city remains healthy and the greater metropolitan area continues to experience strong population growth.

The Toronto report from BILD found prices have started to soften in the high-rise sector, although single-family homes continue to show strength. Data from RealNet Canada Inc. put its new home price index at $609,369 in August for a lowrise home for a 12.7% increase from a year ago. For high-rises the index price is $436,460, a 4.8% drop from a year ago.

The group also says new mortgage rules have taken their toll on the Toronto housing market.

"The federal government has been working on reducing household debt levels and recently adjusted mortgage lending rules. August was the first full month with the new rules in place and it appears these regulations have affected consumer confidence, resulting in significantly reduced sales of new homes," said Bryan Tuckey, chief executive of BILD.

Low interest rates may also not be enough to save the market now, even as Bank of Montreal quietly introduced its 2.99% five-year fixed-rate mortgage as part of a special one-day sale last week.

"People are just not buying as much anymore. There are valuation concerns and the government is making it tough on first-time homebuyers," said Rob McLister, editor of Canadian Mortgage Trends. "The low rates today are just not having as much impact."


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