Canadian home sales rebounded in May and early June after the COVID-19 pandemic halted activity in April, but volume was still at the lowest level since the mid-1990s during what is typically one of the busiest times of the year.
Last month, 26,111 homes were sold on a seasonally adjusted basis, up 56.9 per cent from April, according to the Canadian Real Estate Association, with Toronto, Montreal, Vancouver and other major cities leading the way up.
“Those numbers have been steadily rising from mid-April right through the first week of June,” said Shaun Cathcart, senior economist with CREA. But the association said last month’s sales were the weakest May numbers since 1996 (not adjusted for seasonality), and the country’s housing market still had a long way to go until it reached “normal” levels.
The number of new listings climbed 69 per cent in May from a very low base in April. The home price index, an industry calculation, fell 0.08 per cent to $619,200, with tiny declines in the most expensive markets of Vancouver and Toronto offsetting gains in other parts of Southern Ontario.
CREA typically published a forecast every quarter. But this is the second time in a row it has not issued an outlook because of the economic uncertainty. In March, CREA also did not provide a forecast as the Bank of Canada had made two consecutive rate cuts within two weeks and governments were just starting to understand the severity of the virus.
In the Toronto region, the country’s largest housing market, realtors say competition is returning for the limited number of properties listed for sale. The increase in sales is occurring as the number of novel coronavirus cases decreases from a high reached in early May.
“The public is seeing the COVID-19 numbers have turned a corner and they’re feeling better about things, they’re feeling better about the market and seemingly back out buying,” said Scott Ingram, a realtor with Century 21 Regal Realty Inc., who analyzes Toronto data.
Mr. Ingram measures the percentage of homes sold over the asking price, and found just more than 40 per cent of houses sold over asking in the first 13 days of June in the city compared with 27 per cent in April. The share of condos that sold over asking also increased but was still below 30 per cent.
In the Vancouver area, the most expensive market in the country, home sales quickened in early June after Canada Mortgage and Housing Corp. unveiled tougher rules for borrowers to get mortgage insurance, which is required if their down payment is less than 20 per cent. The new rules go into effect in July.
Even though private insurers Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co. said they would not match CMHC’s stricter rules, real estate experts said buyers are nervous they won’t be able to get a large enough home loan next month.
“Buyers are rushing to make sure they purchase before the deadline,” said mortgage broker Bernadette Laxamana, president of Karista Mortgage in B.C. “They don’t know if Genworth or Canada Guaranty could change their mind, too, come July 1,” she said.
Other areas that had been overheating before the pandemic rebounded. In the Hamilton-Burlington region, as well as Montreal and Ottawa, sales jumped from April to May, and the home price index rose slightly over the same period.
Economists say it is unclear whether the market will continue to recover. The federal government has been providing financial aid to Canadians who lost work and banks have deferred mortgage payments for about 15 per cent of their mortgage holders.
The Canada Emergency Response Benefit, which provides $2,000 in taxable income a month for up to four months, will expire for many Canadians next month, although Ottawa said on Monday that it was working on a plan to extend it. Mortgage deferrals, many of which were granted in March and last up to six months, will end in the fall.
If Canadian homeowners are unable to resume mortgage payments, they could lose their homes to foreclosure and that would trigger more homes to come onto the market and drive down prices.
“The winding down of support programs could bring in more sellers, some of them in a difficult financial position. This in turn could cause prices to decline,” said Robert Hogue, senior economist with Royal Bank of Canada, who added this could have a “significant impact.”
CMHC has predicted that average home prices could drop as much as 18 per cent from peak to trough and does not expect a recovery until 2022. That is bearish compared with banks, whose estimates for price declines range between 5 per cent and 10 per cent.
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