Canada home sales rise, household debt ratio eases

Thu Mar 15, 2012 1:23pm EDT
 
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By Jon Cook

TORONTO (Reuters) - Canadian home sales climbed in February after a soft January and price gains picked up speed, confirming the country's housing market remains buoyant and a potential concern for bubble-wary policymakers.

February existing home sales in Canada grew by 1.4 percent from a month earlier, Canadian Real Estate Association data showed on Thursday.

Sales had fallen 4.5 percent in January from December.

The industry group said sales were up 8.6 percent from a year earlier, compared with a 4 percent gain in January. The annual numbers were not seasonally adjusted.

The national average home price rose 2 percent on a year-over-year basis to C$372,763 ($375,400) in February, compared with a 1.2 percent gain in January.

"The monthly jump will raise eyebrows in Ottawa, where policymakers are growing more concerned about the risks of an overshoot in home prices (and related mortgage debt) that would set Canada up for a harder landing down the road," CIBC World Markets Chief Economist Avery Shenfeld said in a research note.

"That increases the odds of a policy response at some point this year if home price momentum continues, with measures aimed directly at housing and mortgages rather than rate hikes being the likely weapon under consideration."

Some economists and policymakers have expressed concern that the housing market is entering bubble territory in certain cities. Toronto and Vancouver are most frequently mentioned.

Finance Minister Jim Flaherty has tightened mortgage rules several times in a bid to keep the market from overheating. A Reuters poll last month showed a majority of forecasters expect Flaherty to tighten rules again this year.

Canada's housing market has been supported by record low mortgage rates offered by most major lenders, including recent high-profile deals from Bank of Montreal and Royal Bank of Canada.

Not all economists were worried by the latest numbers, with some noting that activity and price gains have slowed from their post-recession surge.

"When you look at the longer term trend, it's still pointing towards a gradual moderation," said Mazen Issa, macro strategist at TD Securities.

Issa said the housing market is unlikely to suffer a severe correction unless the Bank of Canada aggressively hikes its main policy rate, now at 1 percent. The central bank is not expected to move until next year

Issa added that rate increases would likely have to be done gradually in order not to shock the economy.

"Once rates begin to go up again you have to wonder whether households will be able to service that debt," he said.

HOUSEHOLD DEBT RATIO EASES

Flaherty and Bank of Canada Governor Mark Carney have both warned repeatedly about soaring household debt levels, cautioning Canadians to prepare for an era of higher rates.

But a separate report out Thursday suggested the problem has eased slightly.

Statistics Canada said the ratio of household credit market debt - which includes mortgages, consumer credit and loans - fell to 150.6 percent of income in the final quarter of last year from a record 151.9 percent in the third quarter.

Canadians continued to increase their debt load in the period to C$1.6 trillion from C$1.58 trillion in the previous quarter, but their personal disposable income grew at a faster pace, Statscan said.

National net worth increased in the fourth quarter by 0.8 percent to C$6.6 trillion, due to higher non-financial assets, and household net worth per capita increased to C$182,100 from C$180,600.

($1=$0.99 Canadian)

(Additional reporting By Claire Sibonney and Louise Egan; Editing by Jeffrey Hodgson and Rob Wilson)