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At a glance, the Canadian Real Estate Association's latest figures seem to provide all the proof one needs to conclude that Canada's housing market has shrugged off government efforts to slow it down and is spinning out of control at dangerous speed. In fact, those numbers may contain the evidence of a housing boom on its last gasp.
The industry group reported Monday that the number of homes sold nationwide in August was up 2.8 per cent from July, and was up a hefty 11.1 per cent from a year earlier. The latest numbers, capping a general reacceleration in the Canadian housing market that has been going on for months, convinced CREA to increase its 2013 full-year sales forecast.
For policy makers in Ottawa who have tightened mortgage-lending rules repeatedly in an effort to discourage buyers and cool the overheated housing market – and had thought, for a time in late 2012 and early 2013, that they had succeeded – this gravity-defying resurgence must be disheartening. But the fuel that reignited the market smells more of fear than confidence, and suggests the housing rally is late in the game indeed.
CREA believes that this latest surge reflects a rush of buyers capitalizing on their existing preapproved mortgages before they expired. Given that mortgage rates have risen considerably in Canada in the past month (the Bank of Canada pegs the average rate on a five-year mortgage at 0.20 percentage point higher than it was a month ago), any new preapproval would almost certainly come at a higher cost for buyers – hence the urgency.
This suggests that the brisk August buying was, in fact, a bunch of buying that would have been spread over a longer period, but was moved forward by the arrival of rising borrowing costs. And unless you think those borrowing costs are about to go down again (hint: you've got the wrong direction there, friend), then the rising rate environment not only means that the buying bonanza will fizzle once all those low-rate preapprovals pass their best-before date, but that the rates faced by whatever potential buyers still left will be considerably less encouraging than they were a few months prior.
Take a look at some of the other data in CREA's August report. An equal number of urban centres showed declining sales as advancing (a meaningful statistic, given that real estate is in reality not a national market at all but a series of local markets). Based on the ratio of sales to new listings, 73 per cent of Canadian cities' local markets are in "balanced" territory, the highest number on record. Total national sales for the first eight months of the year are down 2.9 per cent.
In short, this is a pale shadow of the housing market policy makers were worrying about a couple of years ago. This latest rate-fuelled burst of buying could well presage a substantial lull, in a market drained of demand and discouraged by rising costs. August is not a resumption of the boom, it's a fading echo.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow him on Twitter at @parkinsonglobe .
David Parkinson