CREA released their January Canadian resale numbers today.
Not a whole lot in here for either the bear camp or the bull camp to get excited about. The strength in sales and listings were largely expected. In total, sales have outstripped listings leading to lower months of inventory readings and stable a stable sales-to-new listings ratio. Next month the number to watch will be the inventory relative to prior years as it may give the first insight into how sellers will respond to this temporary surge in sales. Beyond March, it will be worth watching both sales and listings as all economists are forecasting a decline in sales activity nationwide. How much of a decline will be the big question.
Prices have been flat for 3 months, though the year-over-year increase has expanded to 4%. That number is highly misleading as a surge in multi-million dollar sales in Vancouver accounted for almost half that total gain.
Seasonally adjusted home sales continued to rise from their summer lows, now sitting nearly 25% above the July 2010 low point.
On a year-over-year basis, home sales were nearly 7% below January 2010. This represents the smallest year-over-year sales decline since last May.
House sales in most large markets remain well below the levels from the past year, with Winnipeg and Regina standing out as the major winners. From BMO:
Expect a fairly strong bounce in sales in February as some buyers irrationally rush to beat the new mortgage rule changes. Gregory Klump, CREA chief economist noted that this bounce is already underway: “The sharp rise in sales activity in Toronto following the announcement provides early evidence confirming this.”
“Actual (not seasonally adjusted) new listings on Canadian MLS® Systems normally post their biggest month-over-month increase in January. January 2011 was no exception, marking the first time since 2007 that new listings more than doubled in January compared to the previous month. As a result, seasonally adjusted new listings rose 3.9 per cent from December levels, the largest monthly gain since March 2010”
The rise in listings is not at all surprising given the joint 6 month seller/buyer strike. This will be the key number to watch over the next two months. Months of inventory declined slightly to 5.5, the lowest level since March 2010, while sales-to-new listings remained stable around 57%.
Prices have now moved sideways for three months. On a year-over-year basis prices have increased 4.5%, but that number is somewhat misleading.
As CREA notes, “Much of the year-over-year gain in January 2011 resulted from a jump in the number of multi-million dollar home sales in a couple of areas in Greater Vancouver, the effects of which were amplified at the local, provincial, and national levels by the fact that actual monthly volumes for sales activity are low in January compared to other months.”
If we strip the misleading Vancouver number out, house prices are up less than 2% year-over-year.
What comes next?
It’s worth reminding my readers that on a national level, a significant expansion of house prices beyond underlying fundamentals such as income growth and rents is only sustainable in the short term and only as long as one or several of the following factors are at play: the cost of financing is steadily falling and readily available, mortgage insurance standards are loosening, new buyers are entering the market beyond the capacity of the building industry to meet the need and pushing the home ownership rate up.
Beyond March of this year, all three of these factors come under pressure. TD and BMO also agree with this, though they forecast the slump in sales to be very mild and short-lived.
“The growth spurt will likely be short-lived, and come at the expense of future sales. As was the case the last time the federal government made mortgage insurance rules more restrictive, the strength in sales will likely be followed by a short period of weak housing data….we expect that beyond March home prices will move mostly sideways”
“Activity looks to be going through another short-term burst of strength before the new tighter measures on mortgage insurance kick in…Canada’s housing market looks to have one last fling of strength”