Canada home sales edge up in October, but prices fall

OTTAWA (Reuters) - Resales of Canadian homes rose 0.9 percent in October from September, but prices declined in the month and tighter mortgage rules will likely put more pressure on Canada’s once-booming housing market, separate reports showed on Wednesday.

A real estate sign is seen hanging on a fence in front of a house for sale in Ottawa, Ontario, Canada, August 15, 2017. REUTERS/Chris Wattie

The Canadian Real Estate Association said resales edged higher for a third straight month in October as the market stabilized after a series of mortgage rule changes and a foreign buyers’ tax in Toronto doused demand in spring and summer.

Actual sales, not seasonally adjusted, fell 4.3 percent from October 2016, while home prices were up 9.7 percent from a year earlier, according to the industry group.

A separate report showed a similar pattern, with prices down 10 percent from a year earlier and monthly prices dropping by the most in seven years, according to the Teranet National Bank Composite House Price Index.

Double-digit house price appreciation early in the year sparked fears of a housing bubble after nearly a decade of roaring sales and homebuilding, and various levels of government have taken steps to rein in demand.

Analysts are divided over whether the resulting swoon in sales, particularly in Toronto, Canada’s largest market, points to the start of a major price correction or a temporary pause in demand. Prices, which are slower to fall than sales, are declining in some regions but still rising in others.

“The recent slump in home sales, increases in interest rates and tougher mortgage financing rules will cause a further slowdown over the remainder of this year and well into next year,” David Madani, senior Canada economist at Capital Economics, said in a research note.

CREA President Andrew Peck said looming mortgage tightening, under which home buyers need to pass a stress test to qualify for mortgage financing starting Jan. 1, will pull forward some home purchases, especially in expensive markets like Toronto and Vancouver.

“The stress test is designed to curtail growth in mortgage debt. If it works as intended, Canadian economic growth may slow by more than currently expected,” CREA Chief Economist Gregory Klump said in the report.

The Teranet report showed national prices declined 1 percent in October from a month earlier, the biggest monthly decline since September 2010.

In Toronto, prices fell 2.8 percent on the month. Still, there have been signs the market is starting to stabilize. Separate data earlier this month showed Toronto home sales were up in October from September.

Additional reporting by Leah Schnurr; Editing by Bernadette Baum