Canadian home sales fall in October as rate risk fades

Fri Nov 15, 2013 10:07am EST
 
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By Andrea Hopkins

TORONTO (Reuters) - Sales of existing homes in Canada declined in October from September, suggesting the summer surge in sales was boosted by homebuyers who jumped into the market amid the threat of rising mortgage rates, dampening demand as the year draws to a close.

The Canadian Real Estate Association said on Friday sales activity was down 3.2 percent last month from September, ending a string of monthly gains that began in the spring.

The industry group for Canadian real estate agents said October's decline returned activity to near where it stood in mid-2012, before the government tightened mortgage lending rules to cool the nation's red-hot housing market.

"While the decline in new listings points to waning momentum, one off month for sales does not make a trend as the substantial decline in October appears to be payback from earlier in the summer when sales activity was brought forward to lock in mortgages before further increases," Mazen Issa, Canada macro strategist at TD Securities, said in a research note.

"As such, we are inclined to look through the weakness of this report and focus on the longer term trend where we see the theme of stabilization in the housing market carry the day."

The housing sector has been a major driver of Canadian economic growth coming out of the recession, but the market has been plagued by worries it has over-extended itself and is due for a correction.

Concerned about high levels of household debt, the government tightened credit rules four times since the financial crisis. After the latest intervention, in July 2012, the property market cooled markedly. But the market bounced back this spring, with many buyers making purchases ahead of an expected increase in borrowing costs.

Mortgage rates ticked higher as summer drew to a close, but the Bank of Canada has since indicated it is not in a hurry to raise official interest rates, soothing potential homebuyers who can now take their time as they search for a property.   Continued...

 
A condominium building under construction is seen in downtown Toronto, May 14, 2009. REUTERS/ Mike Cassese