The biggest problem in Canada’s hottest housing markets today seems to be finding something available to buy.
The Canadian Real Estate Association offered up the explanation of a shortage of listings in Vancouver and Toronto for a 2.1 per cent seasonally adjusted decline in existing home sales from August to September.
“Although national sales activity was not as strong in September as it was earlier this year, a lack of supply in some parts of the country is likely keeping a lid on transactions,” said Gregory Klump, chief economist with CREA. “The greater Toronto area and Greater Vancouver made sizeable contributions to the monthly decline in national sales activity. They also rank among the tightest urban housing markets in the country due to a shortage of inventory and supply of land on which to build, which is why prices there continue to grow strongly.”
CREA said September sales were down from August on seasonally adjusted basis in more than half of the markets it surveyed but prices continue to rise. The average price of a home sold in September was $433,649, up 6.1 per cent from a year earlier.
Phil Soper, chief executive of Royal LePage Residential, said there is no question inventory levels are having an impact on housing sales currently. “It is the single biggest variable in the market,” he said. “People forget you are talking about an actual product and you can only build them so fast. When you have a strong year in home sales there isn’t enough on the market to meet demand.”
With so much demand, it has helped put pressure on existing home prices in Canada’s two priciest cities and Soper says people are turning to the renovation market to try and spruce up their homes instead of moving. The Conference Board of Canada reported Monday that 2014 saw the largest annual increase in renovation spending since 2007.
“The problem is if you put your home up for sale in the city, you need to find one too. People just get frustrated and say let’s reno instead,” said Soper.
At the same time, he says sales continue to fall in Alberta because consumers there are not willing to lower their prices in what has become a stagnant market. Existing home sales were down 34 per cent in September in Calgary from a year ago.
“Overall, September’s housing markets stats are consistent with a continued hot housing market – it just doesn’t appear to be getting any hotter. This underscores our view that the highly simulative impact of lower mortgage rates at the start of this year would wear out by September/October,” said Diana Petramata, an economist with Toronto-Dominion Bank
She said existing home prices will be “held back” as people shift to more affordable types of housing like condominiums.
The Teranet–National Bank National composite home price index also showed the strength of the market in Canada’s two hottest cities. It rose 0.6 per cent in September from the previous month, a ninth consecutive monthly increase, but was only up in six of the 11 metropolitan markets surveyed.
The composite index was at an all-time high for September for a seventh straight month but only the Victoria, Vancouver, Hamilton and Toronto markets are now setting records.
David Madani, an economist for Capital Economic, continues to predict there will be a pullback in prices. “Overall, while most markets are responding logically to softening domestic economic conditions, Vancouver and Toronto continue to exhibit bubble behaviour. Over the longer-term, we still believe that these markets will experience major price corrections,” he said.