MNI Analysis:Cdn Nov Home Resales +3.9% Ahead of New Mtg Rules

--CREA Revises Down 2018 Sales Forecasts

By Yali N'Diaye

     OTTAWA (MNI) - Existing home sales impressed with a fourth consecutive

increase in November, as they rose 3.9% from October, led by a 16% surge in the

Greater Toronto Area, The Canadian Real Estate Association reported Thursday.

     Price gains, however, further slowed, with the Aggregate Composite MLS

Housing Price Index down 0.2% on the month and up 9.3% year-over-year, the

smallest 12-month gain since February 2016, mostly as a result of weakening

price growth in the Greater Golden Horseshoe housing markets, especially the

single-family segment.

     The actual unadjusted national average price rose 2.9% year-over-year to

C$504,000, with a 1.9% decrease in Greater Toronto contrasting with a 14.7% gain

in Greater Vancouver.

     Tighter underwriting rules will apply to mortgage borrowers starting in

January, which might have precipitated purchases at the end of this year.

     "Some home buyers with more than a twenty percent down payment may be

fast-tracking their purchase decision in order to beat the tougher mortgage

qualifications test coming into effect next year," said CREA President Andrew

Peck, adding, however, that "evidence of this is mixed".

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

stronger momentum now will mean weaker activity early next year once new

mortgage regulations take effect beginning on New Years day."

     In the Greater Toronto Area (GTA), which explained two-thirds of November's

sales increase, CREA noted a "large" increase of new supply, helping boost

national listings, which were up 3.5% in November.

     As sales and listings increased at a similar pace, the sales-to-new

listings ratio was little changed at 56.4%, up 0.2 percentage points from

October, and still within the 40% to 60% range reflecting balanced conditions.

     The number of months of inventory ticked down to 4.8 in November from 4.9

in October.

     The Bank of Canada has been expecting a slowdown in the housing market as a

result of higher interest rates and tighter macro prudential regulations, noting

in its December 6 policy statement that "housing has continued to moderate, as

expected" in its October economic outlook.

     However, housing starts surged in November, when the trend reached its

highest level in almost 10 years, mainly as a result of higher construction in

multiple units in Toronto.

     So it will be interesting to see how the central bank interprets the

current housing momentum and to which extent it attributes it to buyers acting

earlier in anticipation of tighter rules from January.

     CREA's forecasts released Thursday support the BOC's view of a housing

slowdown despite the current pickup in activity that could be related to

potential homebuyers moving forward their purchases ahead of January's tighter

mortgage rules that will submit even borrowers with a 20% down payment to

stringent stress tests.

     "The 'pull-forward' of these sales may come at the expense of sales in the

first half of 2018," CREA said in its report.

     "Meanwhile, other potential homebuyers are anticipated to stay on the

sidelines as they save up a larger down payment before purchasing and

contributing to a modest improvement in sales activity in the second half of

2018," it added. As a result, CREA revised down its sales forecasts for 2018,

when they are expected to fall 5.3%, largely due to weaker activity in Ontario.

     The national average price is expected to decline 1.4% in 2018.

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

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