MNI Analysis: Canada Oct Home Resales +0.9%; Price Gains Slow

--Teranet House Price Index -1.0% M/M; Largest Drop Since Sept'10; +10.0% Y/Y

By Yali N'Diaye

     OTTAWA (MNI) - Existing home sales rose 0.9% in October to 41,613, with

gains in about half of local markets, led by the Greater Toronto Area, The

Canadian Real Estate Association reported Wednesday, while year-over-year price

gains slowed further.

     At the provincial level, sales rose 2.5% in Ontario, including a 2.5%

increase in the GTA, and were up 1.9% in British Columbia, including a 0.2%

increase in Greater Vancouver.

     CREA Chief Economist Gregory Klump said, "It remains to be seen whether

that momentum can continue once the recently announced stress test takes effect

beginning on New Year's day." Under the new rules, a greater number of potential

buyers will indeed have to meet stress test requirements, since they will also

apply to uninsured mortgages with down payments of more than 20%.

     "The stress test is designed to curtail growth in mortgage debt," Klump

added. "If it works as intended, Canadian economic growth may slow by more than

currently expected."

     On a 12-month unadjusted basis, sales were down 4.3%, posting their seventh

consecutive decrease, CREA reported.

     New listings declined 0.8% on the month to 73,453, including a 2.5% drop in

Greater Vancouver.

     As a result, the sales-to-listings ratio increased to 56.7% from 55.7%,

remaining within the 40%-60% zone consistent with a balanced market. CREA

estimates that about 60% of local markets are in balanced territory.

     The number of months of inventory, another indicator of the state of

supply-demand balance, remained unchanged at 5.0 months.

     On the price front, the national average sales price rose 1.7% on the month

to C$510,694. On a 12-month unadjusted basis, the national average price gain

was up 5.0% in October.

     The MLS Home Price Index was unchanged on the month, and up 9.7%

year-over-year, the smallest increase since March 2016, led by a slowdown in the

Greater Golden Horseshoe markets.

     Separately, Teranet and the National Bank reported that their Composite

House Price Index contracted 1.0% in October from September, the largest monthly

drop since September 2010, led by a 2.8% drop in the Toronto market. On a

12-month basis, the composite 11 index rose 10.0%, the smallest such gain since

June 2016, and the third consecutive deceleration.

     Going forward, most analysts, and the Bank of Canada, expect the

combination of tighter mortgage rules and higher interest rates to slow both

house price inflation and activity. The BOC also cited the anticipated decline

in population growth as a factor likely to weigh on housing starts in the coming

years.

     The central bank continues to watch the economy's response to higher

interest rates.

     But Capital Economics Senior Canada Economist David Madani is taking a more

pessimistic road, saying in a commentary Wednesday that a "national house price

correction is starting to look like a very real possibility for 2018."

     In its latest bank outlook Tuesday, Fitch Ratings said elevated household

debt and house prices make asset quality "sensitive" to higher unemployment or a

faster-than-expected increase in interest rates.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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