Canada's stress test needs reexamining: Mortgage Professionals Canada
Canadian home sale rose in July in broad gains as markets start to recover from the stress test tightening last year, though economists say global concerns raise some uncertainties for the future.
The Canadian Real Estate Association said Thursday that home sales rose 12.6 per cent in July from a year earlier, and were up 3.5 per cent seasonally adjusted from June.
"Sales are starting to rebound in places where they dropped when the mortgage stress test took effect at the beginning of 2018, but activity there remains well below levels recorded prior to its introduction," said CREA president Jason Stephen in the report.
The increase came as sales were up in most of the country's largest markets, including the B.C.'s Lower Mainland, Calgary, Edmonton, Greater Toronto Area, Hamilton-Burlington, Ottawa and Montreal. Sales were down in Regina, Saskatoon, and Windsor-Essex.
The broad rise in sales put them at their best level since the stress tests kicked on at the start of last year, said BMO chief economist Douglas Porter in a note.
"After a challenging 18 months, the Canadian housing market is showing widespread signs of, not just stabilizing, but firming again."
The federal government updated mortgage qualification rules at the start of last year to require more would-be borrowers to prove they could manage if interest rates rose.
The national sales-to-new listings ratio tightened to 59.8 per cent last month from 57.6 per cent recorded in June to the upper end of what's considered a balanced market, he said.
The rise in sales, which came as the number of newly listed homes edged back by 0.4 per cent in July, put some pressure on prices, said Porter.
"With sales regaining some momentum broadly, and the market tightening in many regions, it's little surprise that prices are starting to turn the corner again."
The national average price of a home sold in July was just under $499,000, up 3.9 per cent from the same month last year and a seasonally adjusted 2.6 per cent from June.
Double-digit price gains in several Ontario communities including Ottawa and Kitchener-Waterloo helped drive up the overall average, while cities in Western Canada generally saw prices drop.
Porter said global uncertainties are already driving borrowing costs lower, which could further boost the Canadian market, but if economic declines prove serious then interest rates will be secondary.
"The downside is that if "global uncertainties" morph into something much more serious for the domestic economy, interest rates will be playing a second fiddle."
TD senior economist James Marple said the housing market looked robust for the month, supported by strong population growth, solid job growth and lower mortgage rates.
"This can only be described as a solid month for the Canadian housing market...with most markets in balanced territory or better, the immediate downside risk to home prices have diminished considerably."
He said there is some uncertainty as to where rates will go, since domestically the economy looks strong while there are considerable international challenges as global economic growth looks even softer than previously thought.