Analysis - The buyers are back, Canada housing market defies doomsayers

Sun Jun 30, 2013 10:37am EDT
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By Andrea Hopkins

TORONTO (Reuters) - Daniel DiManno sold his Toronto house for less than he had hoped and wanted to see if prices would cool before he bought a new one. But Canadian mortgage rates are rising again and that's spurring DiManno and others to jump back into the market, cutting short an already brief housing downturn.

"I saw that they are going to increase rates, so I called my bank last Friday and locked in 2.5 percent for 120 days," said the 31-year-old accountant, starting the clock on a four-month search for a new home before borrowing gets more expensive.

After nearly a year of cooling sales and plenty of concern that Canada could head for a U.S.-style housing crash, demand has roared back in key markets. What's still unclear, however, is whether the recent surge is a reinflation of a real estate bubble, a final rush of buyers before rising rates choke off demand, or just a sign of market resilience.

The rise in mortgage rates comes after North American bond yields jumped on fears that an improving U.S. economy will cause the Federal Reserve wind down its monetary stimulus program, known as quantitative easing, more quickly than expected.

After a long cold spring that dampened house hunting, May sales of existing homes rose 3.6 percent, the biggest monthly gain in almost 2-1/2 years, returning the market almost to where it was before Canada's Conservative government tightened lending rules in mid-2012 to stave off a housing bubble.

Housing starts also jumped much more than expected in the month, adding to evidence that late-spring buyers have breathed life back into a market that some had forecast was heading over a cliff.

Toronto real estate agent Steven Fudge said he was starting to believe the market was back in balance after a cool-down. But the specter of higher rates has brought buyers back, marking either a new phase of a bubble or the last kick of a dying mule, he doesn't know which.

"In the last couple of weeks, there's been a real strong murmur ... anticipating a bump in rates," said Fudge, a sales representative at Bosley Real Estate Brokerage, which operates the Toronto property website "It's like fuel on the market. There's now a whole bunch of buyers locking in 60- to 90-day mortgage pre-approval."   Continued...

Sales Manager Jacqueline Yaffe poses in the dining room of the Ritz Carlton residents model suite in Toronto May 1, 2012. REUTERS/ Mike Cassese