TORONTO (Reuters) - Sales of existing homes in Canada fell in November from October and year-over-year sales were down as well, the Canadian Real Estate Association said on Monday as it once again trimmed forecasts for resale housing in 2012 and 2013.
The industry group for Canadian real estate agents said sales activity was down a seasonally adjusted 1.7 percent in November from October. Actual sales for November, not seasonally adjusted, were down 11.9 percent from a year earlier.
The drop continues a slowing trend that began when tighter mortgage rules came into effect in July, and CREA said it now believes national resale housing activity will slow 0.5 percent in 2012 and recede by 2 percent in 2013.
The group had said in September it expected housing to rise 1.9 percent this year and decline 1.9 percent in 2013. In June, CREA forecast a 3.8 percent jump this year.
CREA Chief Economist Gregory Klump said 2012 sales were strong prior to a move by the federal government to tighten mortgage lending rules, and are now weaker.
“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted prior to the most recent changes to mortgage regulations,” said Klump.
POST-CRISIS BOOM FADES
Canada’s housing market avoided a meltdown in the wake of the financial crisis in 2009, with conservative lending standards given most credit for the market’s resilience. Ultra-low interest rates then helped fuel a post-crisis boom.
But Canadian housing is now swooning just as the U.S. market appears poised for a recovery.
Canada changed mortgage lending rules to make it harder for homebuyers to take on too much debt in a bid to slow the nation’s red-hot housing market. The changes, which took effect in July, were the fourth such move in four years.
While most mainstream economists believe the Canadian housing market will gradually decline - a so-called “soft landing” - some believe the housing correction will be more severe, mimicking the crash that happened in the United States in 2008 and 2009.
Scotiabank economist Derek Holt said he believes home resales will continue to soften in 2013.
“The country is at frothy all-time highs for every measure of activity in housing markets and consumer spending, and pro-cyclical housing finance policy that eased too much in 2006-07 has given way to regulatory over-tightening with further lagged negative effects ahead of us,” Holt said in a research note.
But Mazen Issa, Canada Macro Strategist at TD Securities, said housing activity tends to stabilize after a 3-6 month adjustment period after tighter mortgage rules. With borrowing costs still very low, the market could be resilient.
“It remains in the early days to judge whether or not sales activity will remain subdued but with the Bank of Canada expected to remain lower for longer - we anticipate that the overnight rate will move higher in Q4 of next year - there is some limit to the downside in sales,” Issa said.
The slowdown in home sales in the last few months has returned activity to where it stood in August, CREA said.
Although down slightly on a national basis in November, activity picked up in Vancouver Island, Victoria, Chilliwack, Kitchener-Waterloo, and Guelph. Greater Toronto, Greater Montreal, and Greater Vancouver contributed most to the small decline at the national level, the report showed.
CREA said the actual national average price for homes sold in November 2012 was C$356,687 ($361,500), down 0.8 percent from a year earlier. Fewer sales in big markets like Vancouver and Toronto have a big impact on average prices.
CREA said the aggregate composite Home Price Index is a better gauge of price trends. The HPI rose 3.5 percent on a year-over-year basis in November. This was the seventh time in seven months that the year-over-year gain shrank, and marked the slowest rate of increase in prices since May 2011.
Editing by Chizu Nomiyama