Increased mortgage rates are primarily responsible for a rise in national home sales in June 2013, building on gains recorded over the previous three months, according to the Canadian Real Estate Association.
“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,” said Gregory Klump, CREA’s chief economist.
“We have seen this happen before,” he added. “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 number of home sales processed through the MLS® systems of real estate boards and associations and other co-operative listing systems in Canada rose 3.3 per cent on a month-over-month basis in June 2013. It’s the fourth consecutive monthly increase, with activity now running 11 per cent above where it stood in February.
Home sales improved in two-thirds of all local markets in June, including almost all large urban markets. The biggest gains were reported in Victoria, Greater Vancouver, the Fraser Valley, Edmonton, Saskatoon, Winnipeg and Montreal.
Some 240,068 homes have traded hands across the country so far this year. That stands 6.9 per cent below levels in the first half of 2012, when mortgage rules and guidelines had not yet been tightened. While the gap between sales this year and last year is expected to diminish, annual sales are still expected to fall short of last year’s total.
“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,” Klump said.
“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.”
Meanwhile, a new survey revealled that second quarter market trends defy suggestions of a housing bubble in Canada.
The average price of a home in Canada increased between 1.2 per cent and 2.7 per cent in the second quarter of 2013, according to the Royal LePage House Price Survey and Market Survey Forecast.
The survey noted that markets across the country continue to post gains. In the second quarter, standard two-storey homes and detached bungalows both showed a year-over-year average price increase of 2.7 per cent to $419,614 and $386,547, respectively. Average prices for standard condominiums showed a more modest increase during the same period, rising 1.2 per cent to $248,750.
Royal LePage forecasts that house prices will see modest gains throughout the remainder of 2013, projecting a three per cent increase for the full year when compared to 2012.
The Winnipeg housing market witnessed significant appreciation in prices, with multiple offer scenarios and a strong demand for condominiums driving the increases. While detached bungalow prices remained relatively flat, rising by 0.6 per cent to $305,010, standard two-storey home prices grew by 7.1 per cent to $344,598, and standard condominiums increased by 4.4 per cent to $198,431.
The average price of a home in Winnipeg is forecast to rise by 3.9 per cent year-over-year by the end of 2013, according to the survey.
Changes to Canada’s mortgage lending rules in mid-2012 coupled with concerns about consumer debt levels, housing affordability in cities like Toronto and Vancouver and continued international economic uncertainty have prompted a number of analysts to forecast large downward price adjustments.
“As we have stated consistently since the current market downturn began late in the second quarter of 2012, this is a normal cyclical correction which brings fewer home sales and softer prices,” said Phil Soper, president and chief executive of Royal LePage. “Those hoping their predictions of a bursting bubble and cataclysmic drops in home values will come true are out of luck again.”