Home Sales Continue Dropping in the Summer Months
A few short months ago, no one could stop talking about how quickly houses were being snapped up—sometimes within a day or two and often for significantly over asking.
Now, normalcy is returning in the market and sales have slowed significantly.
According to statistic recently released by The Canadian Real Estate Association (CREA), home sales across Canada continued to slow in June (an observation noted by other industry insiders).
CREA says national home sales dropped 6.7 per cent from May to June and that actual (not seasonally adjusted) activity in June stood at 11.4 per cent below last June's level. In terms of prices, they're still high. The MLS Home Price Index is up 15.8 per cent year-over-year, although home prices have been declining month-over-month since prices peaked around March.
According to CREA, June sales were down from the previous month in 70 per cent of all local markets, with the biggest declines being noted in the Greater Toronto Area (GTA).
"Actual (not seasonally adjusted) activity was down 11.4 per cent on a year-over-year basis, much of which reflected a significant drop in GTA sales activity," the report reads.
“Canadian economic and job growth have been improving, which is good news for housing demand,” said CREA President Andrew Peck. “However, it also means that interest rates have begun to rise, which may impact homebuyer confidence - particularly in pricier markets like Toronto and Vancouver where recent housing policies had already moved potential buyers to the sidelines. In lower priced markets, the effect of higher interest rates on housing affordability will be relatively muted."
As for what's prompting the decline in sales, new government legislation—such as the 15 per cent tax on foreign buyers and speculators—has spurred hesitation among prospective buyers.
“Changes to Ontario housing policy made in late April have clearly prompted many homebuyers in the Greater Golden Horseshoe region to take a step back and assess how the housing market absorbs the changes,” said Gregory Klump, CREA’s Chief Economist. “The recent increase in interest rates could reinforce a lack of urgency to purchase or, alternatively, move some buyers off the sidelines before their pre-approved mortgage rate expires. In the meantime, some move-up buyers who previously purchased a home before first selling may become more motivated to reduce their asking price rather than carry two mortgages.”
The number of newly listed homes slid 1.5 per cent in June, led by a sizeable pullback in the GTA compared to record levels in April and May. With sales down by considerably more than new listings in June, the national sales-to-new listings ratio moved further into what CREA is calling "balanced market territory" at 52.8 per cent.
The ratio had been in the high-60% range just three months earlier.
“A sales-to-new listings ratio between 40 and 60 is generally consistent with balanced housing market conditions, with readings below and above this range indicating buyers’ and sellers’ markets respectively," the report reads.
It also appears the inventory problem that was prevalent in the winter months is steadily improving.
According to CREA, there were 5.1 months of inventory on a national basis at the end of June 2017 - up a full month from where the measure stood in March and the highest level since January 2015.
"Months of inventory in the Greater Golden Horseshoe region are up from the all-time lows reached prior to the Ontario government housing policy changes announced in April 2017. For the region as a whole, there were 2.5 months of inventory in June 2017. While this remains below the long term average of just over three months, it is up sharply from an all-time low of just 0.8 months set in February and March," the report reads.
It'll be interesting to see if the dropping sales trend persists into the summer and fall.