MNI DATA ANALYSIS: Canada Housing Market Stabilizing

By Yali N'Diaye and Courtney Tower

     OTTAWA (MNI) - Higher interest rates and tighter macro prudential rules

keep the Bank of Canada vigilant about the economy's response given the still

elevated levels of household debt, and recent data suggest housing could be

stabilizing, which would comfort the central bank in its pursuit of policy

normalization.

     Ahead of the implementation of more stringent mortgage qualification rules

that became effective January 1 this year, potential homebuyers moved their

purchases earlier, boosting housing sales in late 2017, before pulling back in

2018.

--RECOVERING RESALES

     Existing home sales had been rising at an increasingly faster pace from

August 2017 (+0.9%) to December (+5.6%), before tighter mortgage rules became

effective in January, when sales plunged 13.8% on the month.

     Sales continued to contract after January, falling 6.3% in February, 0.2%

in March, and 2.6% in April.

     However, the latest data suggest housing market activity could be

stabilizing, as sales edged up 0.6% in May and rose 4.1% in June.

--HIGHER STARTS

     On the supply side, housing starts rose to a seasonally adjusted annual

rate of 248,138 in June after three months of declines that brought the SAAR to

193,902, the lowest since May 2017.

     The six-month trend also increased to reach 222,041 in June, led by

multi-family dwellings.

     Going forward, higher construction intentions in May indicated more starts

ahead, led by multi-family dwellings, for which permits rose 8.8% to a record

high C$3.1 billion, with British Columbia, Ontario, and Alberta leading the way.

--TIGHTER CONDO MARKET

     Conditions have particularly tightened in the condo market. Canada Mortgage

and Housing Corporation noted in its June report that inventory indicates "that

demand for this type of unit has absorbed increased supply."

     In Toronto, condominium apartment starts reached a 30-year high in June.

     Nationwide, the year-over-year price gains were led by apartment units,

according to The Canadian Real Estate Association.

--STABILIZING MONTHLY PRICES

     House price growth has also shown signs of stabilization on a monthly

basis:  CREA's Composite Home Price Index edged down 0.1% in June.

     According to Statistics Canada, new housing prices were flat in May.

     And the more comprehensive Teranet-National Bank National Composite House

Price Index increased 0.9% in June from May.

     However, said the National Bank, after seasonal adjustments, the index

would have been flat for the past three months.

--SLOWING 12-MONTH PRICES

     On a year-over-year basis, however, prices continue to slow.

     CREA's Aggregate Composite MLS House Price Index increased 0.9%

year-over-year, marking the 14th consecutive slowdown and the smallest gain

since September 2009.

     The Teranet index rose 2.9% year-over-year, the smallest gain since October

2013, and a 12th consecutive deceleration.

     For new houses, prices increased 0.9% year-over-year in May, the smallest

appreciation since February 2010, according to Statistics Canada.

     Such combination should reassure the Bank of Canada in its monitoring of

the economy's response to higher rates, especially the housing sector.

     The central bank, which feels more confident about the need to continue to

hike interest rates, assumes a "partial rebound" of existing home sales in the

third quarter.

     The BOC raised its key policy rate in July by 25 basis points to 1.50%.

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

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