UPDATE 1-Canada home sales jump in August, defy predicted slowdown

Mon Sep 16, 2013 12:11pm EDT

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By Andrea Hopkins

TORONTO, Sept 16 (Reuters) - Sales of existing homes in Canada rose in August from July and were much higher than a year earlier, the Canadian Real Estate Association said on Monday in a report that showed continued strong demand in housing that may end as mortgage rates rise.

The industry group for Canadian real estate agents said sales activity was up a solid 2.8 percent in August from the month before. While that may reflect rising mortgage rates pulling demand from the future, it still defied predictions early in the year for a sharp slowdown in Canadian housing.

"Suffice it to say that next to no one predicted a big mid-year bounce in home sales at the start of 2013, when calls for Canadian housing market calamity were all the rage," BMO Capital Markets Chief Economist Doug Porter said in a research note, adding that sales are now above their 10-year average in seasonally adjusted terms

Actual sales for August, not seasonally adjusted, were up 11.1 percent from a year earlier. The jump is due to a move by the government to tighten mortgage lending rules last summer, which dramatically reduced sales in the second half of 2012 and will make year-over-year comparisons look stark this year.

Still, CREA Chief Economist Gregory Klump said stronger than expected sales are probably due to the fact mortgage rates have inched higher and buyers either want to make a deal before they rise further or before their pre-approved rate expires.

"Recent increases to fixed mortgage rates caused sales to be pulled forward as buyers with pre-approved financing at lower rates jumped into the market sooner than they might have otherwise," Klump said in the report.

Klump said the pool of homebuyers with pre-approved financing has largely evaporated, which means demand may soften over the fourth quarter.

TD Securities' senior fixed income strategist, Andrew Kelvin, agreed.

"We do not expect the recent reacceleration in the housing market to last too much longer, as mortgage rates are expected to continue to rise through the end of 2013 and into the 2014, reducing affordability," Kelvin said in a note.

CREA's home price index rose 2.9 percent in August from a year earlier. Year-over-year growth in the price index has slowed since late 2011 and has ranged between two and three percent for the past seven months, CREA noted.

"While the sales figures have been up and down like a yo-yo over the past year, prices just keep quietly churning ahead," Porter said.

When compared to year-ago levels, more local markets notched gains in the CREA's MLS home price index. Calgary prices were up 7.4 percent compared to August 2012, while Saskatoon prices rose 3.9 percent, Toronto prices rose 3.7 percent, Montreal prices were up 2.4 percent, and Ottawa prices were 0.8 percent higher.

Vancouver prices were 1.3 percent lower than a year ago, according to the price index, while Regina prices were 1.5 percent lower.

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