5 Min Read
TORONTO (Reuters) - Canadian home sales rose in April, the second straight monthly gain, as spring homebuying breathed life back into the slowing real estate sector and bolstered hopes Canada will manage a soft landing rather than a U.S.-style housing crash.
Sales of existing homes climbed 0.6 percent in April from March, but year-over-year sales were down 3.1 percent, the Canadian Real Estate Association said on Wednesday in a report that showed a spring bounce in a housing sector that had been slowing since the middle of 2012.
"Realizing that it may be a tad premature for victory laps, but evidence continues to mount that the Canadian housing market seems to have pulled off the fabled soft landing," Doug Porter, chief economist at BMO Capital Markets, said in a research note.
CREA's home price index rose 2.2 percent in April from a year earlier, its smallest gain in more than two years. That echoed the 2.0 percent April gain in the Teranet-National Bank Composite House Price Index reported on Tuesday.
Prices, still above year-ago levels in most markets, typically lag a slowdown in sales activity as sellers resist pressure to lower asking prices and wait to see whether the market is truly declining.
"It is on the price side where the stable nature of the market is perhaps most evident. Despite the very loud gnashing of teeth and excessive wringing of hands for well over a year on the topic, Canadian home prices remain incredibly calm, cool, and collected," Porter noted.
Major indices for Canadian home prices are up between 1.3 percent and 2.2 percent from year-ago levels, Porter said, noting that is faster appreciation than inflation, with prices still at record highs.
Canada's housing market began slowing in the middle of 2012, when the government tightened lending rules in a bid to prevent consumers from taking on too much debt.
"Today's report further underscores our argument that tighter mortgage regulations have a transitory impact and the expectation for stabilization in the housing market. We expect this theme will persist over the balance of the year and into 2014," Mazen Issa, Canada Macro Strategist at TD Securities, said in a research note.
He said the key markets of Toronto and Vancouver look more balanced after a period of moderation, which will help limit the downside in prices.
The April month-on-month uptick in sales was the second straight monthly gain. CREA said home sales improved in more than half of all local markets in April from March, led by gains in Toronto, Winnipeg, Calgary and Victoria.
There was some noise in the data. CREA chief economist Gregory Klump said the Easter holiday and extra full weekend in March lowered sales activity that month and boosted April sales.
The CREA report showed the national sales-to-new listings ratio inched up to 50.4 percent in April from 49.7 percent in March. It has held near the same level for the past nine months.
Nationally, there were 6.6 months of inventory at the end of April 2013, unchanged from the end of March.
The national average price, not seasonally adjusted, for homes sold in April was C$380,588 ($374,600), up 1.3 percent from the same month last year.
A separate report showed manufacturing sales fell unexpectedly in March, reverting to a trend of lackluster performance in line with modest economic growth.
The manufacturing sector has been too sluggish for comfort since the 2008-09 recession and Statistics Canada data confirmed that the lackluster trend continued in March.
However, an increase in the volume of factory sales in the month may lift first-quarter economic growth more than expected. First quarter GDP figures are due on May 31.
Factory sales fell 0.3 percent in March from February to C$49.5 billion ($48.5 billion), below market estimates of a 0.6 percent gain and dragged down by lower prices for energy products and a slump in fertilizer sales.
The setback came after sales had surged 2.8 percent in February, the biggest gain since July 2011.
In the first quarter, manufacturing sales slipped 0.3 percent and the total value of sales remain below their pre-recession peak.
However, much of the decline was due to lower prices and in volume terms sales actually rose 0.2 percent. This will help deliver the "first upside surprise to growth in a year," said David Tulk, a strategist at TD Securities.
TD sees first-quarter growth of between 2.2 percent and 2.5 percent, annualized, compared with the central bank's latest estimate of 1.5 percent growth.
"While we are bracing for a slower quarter in Q2, the wider narrative for a slow yet sustained recovery over the second half of the year, driven in large part by net exports, remains intact," Tulk said.
($1 = $1.02 Canadian)
With additional reporting by Louise Egan in Ottawa; Editing by Janet Guttsman, Chizu Nomiyama and Andrew Hay