Canada home sales slump, growth in household debt slows

Fri Mar 15, 2013 1:22pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - Sales of existing homes in Canada fell in February and the accumulation of household debt slowed in the final quarter of the year as tighter mortgage rules kept consumer appetite for low interest loans in check.

Reports on Friday showed that a softening in the Canadian housing market was well underway and household debt levels had risen more slowly than in previous quarter.

The data follows repeated warnings by policymakers last year that the housing market could overheat and consumers were taking on too much debt.

The Canadian Real Estate Association said February home sales fell 2.1 percent from the month before, reversing the small gain recorded in January, while sales dropped a sharp 15.8 percent from a year earlier.

Prices, which don't respond to a drop in demand as quickly as sales do, rose 2.7 percent in February from a year earlier, according to the group's Home Price Index. While still a healthy annual gain, it was the smallest year-over-year increase since March 2011, suggesting sellers can no longer demand the price tags they once could.

"February 2012 saw an extra selling day due to the leap year. However, the year-over-year decline between this February and last year is largely a reflection of demand that is well off from 2012," Gregory Klump, CREA's chief economist, said in a statement.

CREA said the government's move to tighten mortgage lending rules in July 2012 has slowed the market, and lower activity is expected until at least the June-to-August peak season.

"Until we get well into the summer months, year-over-year comparisons to months in the first half of 2012 are predictably going to be down significantly but not necessarily be indicative of further deterioration," Klump said.   Continued...