Low mortgage rates have driven Canadian home sales close to an all-time high, catching many economists by surprise. Sales of existing homes have risen for seven months in a row, according to data released Monday by the Canadian Real Estate Association (CREA), which represents Realtors and tracks the market by way of the Multiple Listing Service. August's sales level was the highest since January, 2010, and just six per cent below the record peak in February, 2007.
"This development did little to alleviate concerns that home buyer demand may be getting overly hot in Canada," Royal Bank of Canada economist Robert Hogue wrote in a research note Monday. "While brisk activity should be positive in theory, Canada's housing market may be at risk of overheating if recent trends persist."
The housing market's strength is significant enough that it prompted CREA to boost its forecast for sales this year. It now expects 475,000 existing homes will sell in 2014, up 3.8 per cent from last year. In June, it expected that number to be 463,400.
"A 30 basis point drop in mortgage rates earlier this year [has] delivered households an offer they can't refuse," said Toronto-Dominion Bank economist Diana Petramala, adding that housing activity is now about 10 per cent higher than the average level of the past decade.
Economists have long been expecting Canada's housing market to lose some steam, but the market has continued to defy expectations. The Bank of Canada, which had repeatedly been forecasting a so-called "soft landing," acknowledged this month that the market has been stronger than anticipated.
It would be difficult for policy-makers in Ottawa to take steps to cool sales at this point, because the market's strength is not truly a national phenomenon. Roughly half of the 26 cities and local markets CREA tracks had falling sales both in August and so far this year, Bank of Montreal chief economist Douglas Porter noted. Calgary, Vancouver and Toronto have been lifting national averages, while markets such as Halifax and Winnipeg have been struggling.
Over all, August's sales were 1.8 per cent higher than July's on a seasonally-adjusted basis, CREA said. Sales have slowed on a year-over-year basis in recent months, with August's level coming in just 2.1 per cent higher than a year earlier (without seasonal adjustment). In comparison, July's sales had been 7.2 per cent higher than a year earlier and June's 11.2 per cent higher.
"The deferral of sales and listings during an extraordinarily bleak winter delayed the start to the spring home buying season earlier this year," CREA stated in its revised forecast. "This deferral boosted activity in May and June as properties were snapped up after finally hitting the market, particularly in markets with a shortage of listings.
"Although this boost was and is still expected to be transitory, sales have yet to show signs of cooling as activity strengthened slightly further over the summer."
CREA said that it anticipates activity will peak during the third quarter, as the pent-up demand dissipates while "continuing home price increases erode housing affordability."
Indeed, prices continue to climb with the average national sales price in August coming in at $398,618, 5.3 per cent higher than a year earlier. The MLS home price index, which seeks to create a more apples-to-apples comparison of price gains than the average, also rose 5.3 per cent.
Single-family homes are seeing greater price gains than condos or apartments, and Calgary, Toronto and Vancouver are seeing bigger price gains than other cities.
Factoring out Toronto and Vancouver, the national average price rose 3.9 per cent to $324,738.