Canadian housing market activity eases into fall

Existing home sales fell 2.1% m/m in September and were up just 0.7% from year ago levels. However, sales are still elevated relative to historical norms and it was the second best September on record for homes sales. Listing also fell by 2%, holding the sales-to-listings ratio steady at 56.8% - in balanced territory.

Average existing home price growth cooled to 6.1% year-over-year in September, following 6-months of near-9% growth. However, the average existing home price can be distorted by a shift in the composition of sales  - which appears to have been the case in September. On a quality adjusted basis, home prices were up 6.9% year-over-year, following a 6.4% gain last month. The acceleration in the quality adjusted home price index was broad based across types of homes. Single-family homes continued to lead the charge with a 9.0% year-over-year gain in September. However, apartment prices also started to pick up some steam, rising by 4.2% y/y in September, following a 3.1% gain last month.

The decline in resales was broad based across all markets, with the exception of Montreal (+1.1%) and Halifax (+39%). Calgary (-7.5%), Edmonton (-4.3%), Toronto (-3.5%), Greater Vancouver (-3.8%), posted some of the largest declines in the month.  Regardless, Vancouver and Toronto still remain in seller's territory and prices were up a still hot 13.7% and 10.4% y/y on a quality adjusted basis, respectively. Elsewhere, there was a large divergence in annual price performance, with prices down heavily in Regina (-4.1% y/y), flat in Saskatoon (-0.9%) and Calgary (-0.4% ), but then up 1.6% in Montreal. 

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 the view that the highly simulative impact of lower mortgage rates at the start of this year would wear out by September/October. Looking forward, a favourable economic backdrop and balanced market conditions will continue to support a moderate pace of housing activity in most markets across Canada. The exceptions include Calgary, Edmonton, Regina and Saskatoon where sustained low oil prices are likely to lead to weak housing activity through the rest of 2015 and first half of 2016. Existing home sales are already down 34% from year ago levels in Calgary.

"Looking forward, average existing home prices are likely to be held back by a shift towards more affordable types of housing (for example, condos) and regions (away from Toronto and Vancouver). Therefore, more emphasis should be placed on the MLS quality adjusted home price index. With some bigger markets remaining relatively tight, we should continue to see more upward pressure on quality adjusted prices through the rest of 2015", says TD Economics.