TORONTO (Reuters) - Canadian existing home sales jumped 11.5 percent in April from a year earlier, boosted by a hot Toronto market, but modest price gains nationally and sluggish activity in Vancouver suggest the country’s housing boom may be cooling.
The latest data showed a growing divergence between Toronto and Vancouver, which have both seen bidding wars and foreign investment spur a post-recession property boom.
The Canadian Real Estate Association (CREA) said on Tuesday that 49,480 homes changed hands across the country last month, up from 44,370 a year earlier.
The industry group for real estate agents noted year-before sales were hurt by Finance Minister Jim Flaherty’s 2011 decision to tighten access to government-insured mortgages. That change was aimed at taming a red-hot housing market and a surge in household debt levels, both of which have alarmed policymakers.
The latest data showed sharp regional differences. Sales fell 13.2 percent in Vancouver, by far Canada’s most expensive property market, but jumped 14.5 percent in Toronto, where a boom in condo development has raised bubble fears.
The national average home price rose just 0.9 percent year-over-year on a non-seasonally adjusted basis to hit C$375,810 ($375,810).
CREA noted that the divergent fortunes of Toronto and Vancouver again had a huge influence on the numbers, with the national average price skewed higher in the spring of 2011 by record high-end home sales in Vancouver’s priciest neighborhoods.
This April, the average residential selling price in Vancouver, a popular destination for many Asian buyers, tumbled nearly 10 percent from a year earlier to C$735,315. The average price in Toronto jumped 8.4 percent to C$517,556.
“Sales data confirm that high-end activity in Vancouver is well off the peak levels reached at this time last year, which is exerting a gravitational pull on the national average price,” Gregory Klump, CREA’s chief economist, said in a statement.
“By contrast, activity in Toronto is stronger this spring than it was last spring. Higher-priced sales activity there is on the rise and buoying average prices. As the most active housing market in Canada, Toronto is the biggest factor supporting national average price.”
Mazen Issa, Canada macro strategist at TD Securities, said that the overall data points to a “soft landing” in store for the existing-home market nationally, noting that the pace of both sales activity and prices has been decelerating gradually from late last year.
“This report also underscores the dichotomy in the housing market,” Issa said in a note to clients.
“On the one end, Vancouver has been on the decline, while Toronto remains robust. We expect that the latter will follow suit later this year, as we expect the Bank of Canada to gradually withdraw stimulus in the autumn of this year.”
Government data earlier this month showed Canadian housing starts in April blew past forecasts to the highest level since 2007, adding to concern about the potential for a housing bubble.
Canada avoided the housing boom and bust that helped trigger the U.S. recession and the global financial crisis. But the record-low borrowing costs that followed have sent prices and sales soaring.
Both the federal finance department and the Bank of Canada have warned repeatedly about Canada’s housing market, and traders have been raising their bets of a interest rate hike later this year, which is expected to slow down activity.
“Vancouver is clearly weakening,” Robert Kavcic, economist at BMO Capital Markets, wrote in a note to clients, pointing out that sales there are 19 percent below the average levels of the past decade, while Toronto prices continue to rise amid tight supply conditions.
Even so, Kavcic suggested the broader report should provide some comfort to policymakers.
”Supply and demand look balanced, with the sales-to-new listings ratio barely above normal levels, and the months’ supply of homes steady at a historically normal level,“ he said. ”At the highest level, Canada’s housing market hardly seems worthy of bubble mongering.
Reporting by Claire Sibonney; Editing by Jeffrey Hodgson and Peter Galloway