Canada’s housing market continued to slide in June in a trend that economists expect will be accelerated by an anticipated interest rate hike by the Bank of Canada next week.
Seasonally-adjusted home sales fell 8.2 per cent in June from May levels, according to statistics released Thursday by the Canadian Real Estate Association.
“With interest rates on the rise, housing affordability and home sales activity are expected to continue to erode over the second half of 2010,” Gregory Klump, the Canadian Real Estate Association’s chief economist, said in the report.
“National home sales activity is easing due to fewer and more cautious first-time homebuyers,” he added.
Home sales are now down 25 per cent from the peaks reached at the end of last year, said Bank of Montreal (TSX:BMO) deputy chief economist Douglas Porter, who added that the sector is now firmly in buyer’s market terrain.
Housing sales were front-end loaded in the early months of 2010 ahead of higher interest rates and the new harmonized sales tax in the hot markets of British Columbia and Ontario, but “are now in rapid reverse,” Porter wrote in a note Thursday.
Economists have predicted a slowdown in the housing market in the second half of the year as many buyers hurried to close in late 2009 and the first half of this year to take advantage of record low interest rates.
The Bank of Canada is widely expected to hike interest rates a quarter-point to 0.75 per cent in its policy announcement next week.
“(That) may add yet another dampener to sales, although the recent slide in longer-term mortgage rates suggests borrowing costs may be less of a factor on housing than initially feared,” Porter said.
Sales have declined about 13.3 per cent from near-record levels seen in the first quarter. In May, seasonally adjusted home sales departed from historical averages to drop by 9.5 per cent nationally from near-record activity the month before.
Sales activity in the second quarter of this year stood 2.8 per cent below the comparable 2009 period, but on a year-to-date basis, sales are up 13.6 per cent.
“This gap is expected to shrink as the year progresses, since activity trended upward over the second half of last year and is forecast to continue easing over the second half of 2010,” CREA said in its release.
Toronto and Calgary led June’s decline that saw sales contract in nearly 70 per cent of local markets last month.
The market is becoming more challenging for sellers as buyers are in less of a hurry to make a purchase. Tighter mortgage regulations and anticipated interest rate hikes are also eroding some of the competitive pressure to get into the market, CREA said.
Some economists had predicted a boost in June sales driven by a rush to market before the HST hit Ontario and B.C. on July 1, but any pickup as a result of that wasn’t enough to offset weaker overall sales.
Meanwhile, the number of newly listed homes on CREA’s Multiple Listing Service declined 6.8 per cent last month from May — a trend the association says will help maintain balance between supply and demand.
Although a more balanced market is expected to eventually bring prices down, the national average price of a home rose 4.9 per cent on a year-over-year basis to $342,662 last month. That was down from the 8.5 per cent increase in May, which was a slower increase than has been seen over the past nine months.
On a seasonally-adjusted basis, it would take 6.9 months to sell all of the houses on the market in June at the current rate of sales activity — the highest number since March 2009. It could rise further as sales activity trends lower.
“While the pricing environment is becoming more challenging, a recovering economy and job market will provide support for housing activity and prices,” Klump said.
Porter noted that seasonally adjusted prices have stabilized since last fall.
He believes there will be some modest declines in prices before the year is over — particularly in the HST affected markets of B.C. and Ontario. However, double-digit price increases in hot markets like Vancouver are still much more common than price declines in major markets.
“It will be just a matter of months before the year-on-year price comparisons sag to around the zero line,” Porter said.
“While the headlines may look soggy for the next few months, there are reasons to believe the market could soon regain its balance (since) long-term mortgage rates have dropped, employment remains on a roll, and prices have stabilized,” he added.
Extract of the Red Deer Advocate