10/16/2017
TD Economics
Canadian Data Release: Sales up for second consecutive month in September on GVA strength and continued GGH rebound
· Canadian existing home sales rose 2.1% m/m in September, marking the second increase in five months. Still, existing home sales remained 12% below the peak reached in March 2017.
· The increase was largely related to a rebound in the GVA, which increased by 6.1% in September, and several Ontario markets including the GTA (+2.9%), London (+27.2%) and Kitchener-Waterloo (+9.0%), while other Ontario markets saw declines. Other Canadian markets that experienced a pick-up were Winnipeg (+6.9%), Saint John (3.6%), and several smaller Quebec markets like Trois Rivieres (22.8%), Saguenay (6.7%), and Sherbrooke (2.8%). Calgary (+2.8%) and Edmonton (+0.4%) also recorded gains.
· New listings rebounded 4.9% after three months of declines, led by the GTA (+18.9%) as well as Hamilton (12.9%), Kitchener-Waterloo (8.7%), London (24.5%) and Niagara (11.9%). The GVA (5.7%) and Fraser Valley (13.1%) also saw sharp upticks in listings.
· The faster rise in new listings pushed the sales-to-new listings ratio lower from 57% to 56% - still near the top end of the 40%-to-60% range considered a balanced market. The sales-to-listings ratio fell in Ontario (down 4pp to 53.9%) with the GTA pulling back 7 points to 45.8% and similar moves experienced by most Greater Golden Horseshoe markets. The ratio also pulled back in Nova Scotia (down 5pp to 54.4%) and Newfoundland & Labrador (down 3pp to 35.7%). Manitoba managed a notable uptick (up 5pp to 62.1%). Most other markets were little changed, with B.C. holding in the high-60% territory.
· The average home price rose 1.4% on the month led by gains in Newfoundland and Labrador (+2.8%), New Brunswick (+2.3%) and B.C. (+2.2%) – with GVA prices up 4.1%. Prices in Ontario rose by 1%, helped by a gain in the GTA – which saw its first gain in six months (+1.3%).
· On a year-over-year basis, the quality adjusted MLS home price index decelerated to 10.7% from 11.2% in the previous month as Ontario markets continued to cool. Prices decelerated 2 to 3 percentage points in the GTA (to 12.2%), Guelph (to 17.3%) and Oakville (to 8.8%) in September, with Ottawa the only Ontario market to accelerate (to 6.1%). Markets in Saskatchewan also accelerated from past weakness with the GVA also seeing acceleration to double digit pace (10.9%).
Key Implications
· After four months of declines, September marks the second consecutive month during which activity rose across Canadian housing markets. But, unlike last month, which was all a GTA story, this month's gains were more widespread. The rebound in the GTA and many other Ontario markets continued during September, but activity remains well below the frenzied pace seen through March 2017. On the other hand, many other non-Ontario regions saw rising activity as people rushed to get into the market as mortgage rates begun to rise.
· The GVA, in particular, is once again showing signs of heating conditions with sales up strongly and prices nearing record levels. Still, we expect rising mortgage rates will take some steam out of this market given the affordability pressures, with slower price growth on the horizon. Quebec's housing markets are also showing signs of improvement, alongside the strong economic growth and near record-low unemployment in the province. As far as the Grater Golden Horseshoe and the GTA in particular are concerned, rising mortgage rates will keep these markets from rebounding too quickly, with the recent rebalancing of conditions still on relatively fragile ground. Lastly, the energy-rich provinces have seen some rebalancing of conditions, and while still elevated unemployment rates pose a risk going forward, we expect conditions will continue to gradually to improve with the economic backdrop.
· After raising rates twice over the summer, the Bank of Canada is expected to hike once again later this year, with another two likely next year. Rising interest rates should begin to more forcefully impinge on Canadian housing activity, which may be further impacted should the new B-20 rules from OSFI be implemented. Having said that, after some near-term weakness, likely to last into mid-2018, activity should begin to rebound thereafter given the fundamentally supported demand related to strong job growth and strengthening wage dynamics.
Michael Dolega, Senior Economist
416-983-0500
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