It’s increasingly looking like the strength that Canada’s housing market has been showing in recent months has staying power.
Economists have been surprised by the degree to which home sales have bounced back from the pounding they took in the summer of 2012, when Finance Minister Jim Flaherty tightened the mortgage insurance rules.
Part of the reason the market has been so resilient since July is that consumers have been jumping in because they feared that mortgage rates would be rising. Many economists have been forecasting a drop in sales once that phenomenon plays out. Most experts say it won’t be until the end of the year that we’ll really know whether the recent momentum is more than a short-term blip.
The latest data, for October, will be released Friday by the Canadian Real Estate Association. The preliminary numbers from local real estate boards suggest it was another strong month, on the heels of September’s 18.2-per-cent year-over-year increase in sales.
“Canada’s real estate market looks like it has its mojo back,” Bank of Montreal economist Benjamin Reitzes said in a research note. “Existing home sales are expected to rise 12 per cent year-over-year in October, continuing the firming momentum established in the summer months.
“The persistent strength suggests that it’s more than just sales brought forward due to anticipation of higher rates,” he added. “In fact, mortgage rates have shifted lower in recent weeks, reinforcing that rates aren’t likely to move materially higher any time soon.”
It should be noted that the market was in a slump this time last year, making it easier for the year-over-year comparisons to be strong. But this spring economists were expecting home sales in 2013 to come in below 2012, and that’s no longer the case.
And new home construction continues to be stronger than expected, suggesting builders think the market still has legs, although economists continue to caution that the pace of building should come down.
Economists were expecting builders to start construction on 190,000 new homes on an annualized basis last month, but the actual number came in at 198,000.
But some say that may not last.
“This renewed strength in the housing market is not expected to continue for much longer, as many of the largest markets in Canada are overbuilt,” Toronto-Dominion Bank research associate Sonny Scarfone wrote in a note. “Demographically supported levels of new home construction are an estimated 175,000 units.”