TORONTO (Reuters) - Sales of existing homes in Canada jumped in June from May, notching the fourth straight monthly increase, the Canadian Real Estate Association said on Monday in a report that showed buyers may be rushing to close deals ahead of a rise in mortgage rates.
The industry group for Canadian real estate agents said sales activity was up 3.3 percent in June from the month before. Actual sales for June, not seasonally adjusted, were down 0.6 percent from a year earlier.
June’s increase lifted national activity almost to where it was just before Canada’s Conservative government tightened mortgage lending rules last summer.
Fearing a housing bubble after years of heated activity, the government changed lending rules to make it harder for consumers to take on too much debt to buy a house. The changes, which took effect in July 2012, shortened the maximum length of a government-insured mortgage and limited the amount people can borrow against their homes.
The housing market slowed dramatically in response to the tighter rules, and some economists worried that the U.S. housing crash would be repeated in Canada. But prices, which lag sales activity, have so far only slowed their rise, and the spring market brought the traditional seasonal bounce in home buying.
CREA said its home price index was up 2.3 percent in June from a year earlier, matching the May increase.
CREA Chief Economist Gregory Klump said a rise in mortgage rates may be spurring activity. While the Bank of Canada is not expected to raise official interest rates until last 2014, Canadian lenders have raised mortgage rates in recent weeks as global bond yields inch higher.
“Increases in mortgage interest rates likely prompted some buyers with pre-approved mortgages to jump off the sidelines and into the market in June, particularly in larger, more expensive urban markets where affordability is strained,” Klump said in a statement.
“We have seen this happen before. If fixed mortgage rates continue holding where they are or edge slightly higher, sales may ebb over the summer and early autumn, with slightly higher borrowing costs picking up where the finance minister left off last year to keep the housing market in check,” he added.
The typical five-year mortgage rate offered by Canada’s major banks has risen to about 3.69 percent, up from about 3 percent a few months ago.
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 to wind down its monetary stimulus program, known as quantitative easing, more quickly than expected.
When compared to year-ago levels, the number of local markets was split evenly between those with year-over-year declines in actual, not seasonally adjusted, activity and those that posted gains in June. Toronto and Montreal remain below year-ago levels, although their declines continue to shrink. Sales in Vancouver, Calgary and Edmonton were up compared to last June.
With sales activity up and new listings down, the national sales-to-new listings ratio rose to 53.8 percent in June from 51.8 per cent in May. That’s considered balanced territory.
The national average price for homes sold in June 2013, not seasonally adjusted, was C$386,585 ($372,100), an increase of 4.8 percent from the same month last year.
($1 = 1.0391 Canadian dollars)
Reporting by Andrea Hopkins; Editing by Jeffrey Hodgson and James Dalgleish