Tara Perkins – Globe and Mail

The mar­ket for home sales is chill­ing fur­ther after months of decline – and it’s putting Finance Min­is­ter Jim Fla­herty on the hot seat.

New data show sales dete­ri­o­rat­ing in Novem­ber, and the asso­ci­a­tion that rep­re­sents Cana­dian real­tors says sales will fall, not rise, this year and next.

Mr. Fla­herty, who sought to cool the mar­ket this sum­mer by tight­en­ing mort­gage insur­ance rules, says his actions are only one part of the story and that Cana­di­ans are vol­un­tar­ily curb­ing their appetites for mort­gage debt.

The stricter rules that took effect in July included cut­ting the max­i­mum length of an insured mort­gage to 25 years from 30, a move that indus­try play­ers say knocked a num­ber of poten­tial first-time buy­ers out of the mar­ket or pushed them into lower-priced homes. In addi­tion to the rule changes, Mr. Fla­herty and Bank of Canada Gov­er­nor Mark Car­ney have been try­ing to talk down the mar­ket by warn­ing Cana­di­ans about the per­ils of tak­ing out large loans while inter­est rates are low. Their fear has been that too many bor­row­ers were tak­ing on exces­sive mort­gage debt that would be unaf­ford­able if rates were to rise. Parts of the mar­ket were get­ting frothy so, to mit­i­gate the risks of a hous­ing down­turn they’ve sought to slowly take some steam out of the mar­ket and steer it toward a soft landing.

While econ­o­mists say that so far it appears to be work­ing, a num­ber of real estate pro­fes­sion­als and orga­ni­za­tions argue that the changes went too far and pose a threat to the economy.

Com­ment: Oh now that is just silly. There is no threat to the econ­omy. It just weeds out those on the cusp, serv­ing only to make our real estate mar­ket stronger.

On Mon­day the Cana­dian Real Estate Asso­ci­a­tion reported that sales over the Mul­ti­ple List­ing Ser­vice fell 1.7% from Octo­ber to Novem­ber, with activ­ity com­ing in 11.9% lower than last November.

As a result it has cut its fore­casts for this year and next, which it had just revised down­ward in Sep­tem­ber, say­ing “lower than pro­jected third-quarter sales have down­graded the prospects for activ­ity this year in almost every province.” And the asso­ci­a­tion made it clear that, as far as it can see, there is only one rea­son for the cooling.

Com­ment: There is a direct cor­re­la­tion. Sales vol­ume fell in each of the months fol­low­ing the new mort­gage rules. In the first half of the year, each month saw a lit­tle increase over the same month on 2011. After the new rules, every­thing changed. Like some­one flipped a switch. So yeah, there is one big main rea­son for the sales drop.

“Inter­est rates have remained low and the eco­nomic back­drop has remained sup­port­ive for hous­ing activ­ity, so that should leave lit­tle doubt that recent changes to mort­gage reg­u­la­tions are respon­si­ble for hav­ing cooled activ­ity,” CREA chief econ­o­mist Gre­gory Klump stated in a press release.

Com­ment: When only one thing changes…

But Mr. Fla­herty, when asked about that asser­tion dur­ing a press con­fer­ence in Meech Lake, Que., where he was meet­ing with provin­cial finance min­is­ters, said “the cause and effect is not that simple.”

Com­ment: Yes, it is.

“I cer­tainly believe that the steps we took to tighten the mort­gage insur­ance rules had some effect,” he said. “The Office of the Super­in­ten­dent of Finan­cial Insti­tu­tions tight­ened guide­lines as well. And I think there’s an increas­ing aware­ness among the Cana­dian pub­lic that exces­sive debt is unwise in a time of his­tor­i­cally low inter­est rates.”

Com­ment: Yet debt lev­els are not falling.

OSFI, the nation’s bank­ing reg­u­la­tor, released mort­gage guide­lines this sum­mer that push lenders to be more cau­tious in areas such as credit checks and appraisals. It also capped the amount that an indi­vid­ual can bor­row on a home equity line of credit at 65% of the home’s value. The big banks were required to fol­low those guide­lines as of the start of November.

CREA now expects resales of exist­ing homes to come in at 456,300 units this year, down 0.5% from last year and nearly 1% below the 10-year aver­age. In Sep­tem­ber, it said it expected resales to rise by 1.9% this year to 466,900 units, a fig­ure that it had already revised down.

CREA now expects 447,400 sales next year, down 2% from this year. In Sep­tem­ber it had esti­mated 457,800 units – again, a fig­ure that it had already cut.

“The con­tin­u­a­tion of mod­er­ate eco­nomic, job, and income growth will tem­per the impact of recent mort­gage rule changes, which are not expected to dampen activ­ity much more than has already been felt until inter­est rates are expected to begin ris­ing in late 2013,” the asso­ci­a­tion stated in its new forecast.

Com­ment: But ris­ing inter­est rates sig­nal a strong econ­omy, mean­ing there are jobs and money.

The slow­down is begin­ning to show up in prices, which have lost their momen­tum. The national aver­age price of houses that sold in Novem­ber was 0.8% lower than a year ago. The MLS Home Price Index, which seeks to account for changes in the type of houses sold, rose by 3.5%, its small­est increase since May, 2011.

Sales have con­tracted in eight of the past 11 months, Toronto-Dominion Bank senior econ­o­mist Sonya Gulati said in a note.

The slow­down is most notice­able in Toronto, Mon­treal and Van­cou­ver, she added, say­ing those cities “are more vul­ner­a­ble to expe­ri­ence a greater-than-average hous­ing adjustment.”

Com­ment: Van­cou­ver fell more than 30%, a rather seri­ous drop. Toronto saw sales fall only 4%.

Nation­wide, TD expects mar­ket con­di­tions to sta­bi­lize early next year “as tighter mort­gage rules loosen their grip on mar­ket trends and low inter­est rates lure home­own­ers back into the market.”

Com­ment: And those on the edge save up more to be able to get past those new mort­gage rules. This is only a tem­po­rary slump, things will pick up again in the spring.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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fla­herty com­ments 2013 on real estate market

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