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TD Economics

 Release: The Canadian resale housing market softens in April 

• After the mortgage rule changes that came into effect in March produced a “rush-to-buy” in the first quarter, existing home sales fell back 4.4% in April, to 36,564 units.
  
• Regionally the largest declines were seen in some of Canada’s most active and expensive markets, namely Toronto, Vancouver and the Fraser Valley — areas which had seen the biggest rush-to-buy ahead of the rule changes.
  
• However, sellers remained optimistic with new listings up 1.3% in April, after falling in March. An increase in new listings combined with softer sales pushed the sales-to-new listings rate to 0.525, from 0.557 in March, well within the territory of a balanced market, defined as a ratio between 0.45-0.60. On the whole, the Canadian Real Estate Association (CREA) characterizes two-thirds of local markets in Canada as balanced in April, with only half of the remaining markets classified as a “sellers’” market.
  
• Those “balanced” markets produced a 0.5% softening in home prices in April, although prices are still up 8.0% year-on-year. Lately a hot market in certain segments of Vancouver real estate has left an indelible mark on the price increase nationally national tally. Excluding Greater Vancouver, Canadian home prices are up a more moderate 5.1% year-on-year.

Key Implications

• April’s decline in existing home sales shows the impact of the March 18^th changes to mortgage rules that lifted existing home sales in Q1 to their highest level in a year as buyers rushed to buy ahead of the change. We don’t expect the first quarter’s pace to be sustained and April’s reading sets the stage for an expected softening.
  
• That said, decent employment and income gains and a still-low interest rate environment continue to provide a relatively favourable backdrop for home sales, and so we expect Canada’s housing market to land softly. And after the rule-change inspired gyrations are in the rear-view mirror, we see sales gradually moderating as interest rates rise in the second half of this year.
  
• For the most part, Canada’s housing market remains in a well-balanced position with few price pressures on the horizon. However, the national average price tally continues to be skewed by higher flying markets in Greater Vancouver and this area remains a key one to watch in the coming months.