The Canadian Real Estate Association reported Monday that sales in August were up 1.8 per cent month over month, due to strong sales in major centres. It was the seventh consecutive month of growth for the country’s housing market.
“Although activity rose in fewer than half of all local housing markets in August, the national tally was fuelled by monthly sales increases in Greater Vancouver, Calgary and Greater Toronto,” said CREA.
Sales rose the most in Vancouver, up 10.3 per cent, at 2,820 units. Calgary sales were up 5.2 per cent, at 2,976 units. CREA’s data for Calgary includes the city’s surrounding areas.
Doug Porter, chief economist with BMO Capital Markets, said the overall level of sales in Canada is closing in on the pre-recession highs reached in 2007.
He said markets are balanced in most regions, but Alberta is an exception, “where sellers retain the upper hand over the ongoing tide of newcomers to the province.”
“Canada’s housing market remains healthy and well balanced overall, albeit with sizeable disparities across regions. The major potential flashpoint is that prices in the three hottest cities — Calgary, Toronto and Vancouver — are rising faster than family income, further straining affordability,” he said. “The continued rapid price gains in these cities will increase their vulnerability to a shock — whether economic, interest rate, or something else.
“The persistent strength in these cities is no doubt what prompted the Bank of Canada to stop talking about the inevitably of a soft landing for Canadian housing, and to suggest that the sector has been stronger than they expected. But we would reinforce the message that talk about the hot housing market is really only a three-city story.”
The CREA reported Monday that Calgary’s annual price growth of 9.83 per cent in the MLS Home Price Index was much steeper than the national aggregate of 5.33 per cent.
Gregory Klump, CREA’s chief economist, said listings and sales this spring were deferred due to unseasonably harsh weather, which subsequently supported activity once the delayed spring homebuying season got into gear.
“This trend was reinforced by a decline in mortgage interest rates,” he said.
“The boost from deferred sales is still expected to prove transitory. While national activity has yet to cool, sales were down from the previous month in the majority of Canada’s local markets, which may be early evidence that the transitory boost is fading. That said, low interest rates will continue to support housing affordability and sales activity.”
The national average price for homes sold in August was $398,618, up 5.3 per cent from the same month last year while the average in Calgary rose by 5.2 per cent to $454,994.
In Alberta, the average price rose by 4.2 per cent to $397,701 as sales were 3.8 per cent higher to 6,354 transactions.
A report by TD Economics said the obvious risk with a housing boom is that it may be fueled by unsustainable increases in debt. Despite rising housing activity, mortgage credit growth remains modest. This is largely a function of households paying back principal more aggressively than in the past, as well as moderation in home equity withdrawals, it said.
“There is, however, clear cause for caution. While households have moderated their credit growth, household debt remains near record highs,” wrote Brian DePratto, economist with TD Economics. “The ratio of household debt to disposable income reached 163.6 per cent in the second quarter, near the peak of 164.1 per cent seen in (third quarter of 2013).
“To sum up the current state of the housing market and household finances, it would appear that the party is still going, but households are nearing their limit. Real risks exist that bear close monitoring. Interest rates remain low, and their lure may prove too strong for households, fuelling a further acceleration in household debt. At the same time, net worth has been buoyed by gains in house prices, and a dramatic slowing, or even decline, in prices would have a damaging effect on net worth.”
The report said the housing party is likely to wind down in an orderly fashion. Rates can’t remain low forever, and TD expects a gradual rise as we approach 2015, leading to a natural deceleration in the demand for housing.
In an updated forecast also released Monday, CREA said sales nationally will reach 475,000 units in 2014, representing an annual increase of 3.8 per cent. Sales are expected to dip by 0.4 per cent in 2015 to 473,100 units.
CREA is forecasting Alberta sales to jump by 7.7 per cent to 71,200 transactions and 1.0 per cent to 71,900 units.
The average sale price in Alberta is forecast to rise by 5.0 per cent this year to $400,200 and by another 1.9 per cent next year to $408,000 while nationally the price will increase 5.9 per cent this year to $405,000 and by 0.7 per cent in 2015 to $407,900.