RBC Monthly Housing reports Highlights 

The seven-month stretch of monthly gains in Canada’s home resale market ended in October 2013. The Canadian Real Estate Association (CREA) today released statistics showing that home resales fell 3.2% between September and October, representing the first monthly decline since February 2013. The latest tally continued to track higher than the year-ago level (up 8.3%), although the pace moderated noticeably from the 18.2% rate recorded in September. Recent hefty year-over-year gains mainly reflected soft activity last year when changes to mortgage insurance rules exerted a significant dampening effect on market activity. The October 2013 resales were essentially on par with the 10-year average (exceeding it marginally by 0.9%). Moreover, on a year-to-date basis, home resales were effectively flat (edging 0.3% lower) from the same period last year, reflecting a very slow start to 2013.

While the drop in resales contributed to loosen demand-supply conditions slightly in October, the earlier tightening in several key markets in Canada gave sellers more sway in setting prices. While remaining well contained, the rate of price increases accelerated slightly for the sixth consecutive month in October, with the year-over-year rise in the national composite MLS HPI moving to 3.5% from 3.1% in September. Calgary, Saskatoon and Toronto once more contributed most to this annual increase.

The resale decline in October was not entirely a surprise because we suspected that much of the strength in recent months reflected the unwinding of earlier restraint associated with the tightening of mortgage insurance rules last year and a rush by some homebuyers to lock-in lower mortgage rates this summer. Developments in October were consistent with that view. Nonetheless, the latest batch of statistics from CREA still indicates a fairly constructive state of affairs for Canada’s housing market. Resale activity remains close to average nationally and price increases continue to be mostly contained. Renewed vigour since spring largely dispelled earlier fears of a severe downturn, and the decline in home resales in October will ease the opposite concern that the market might be rebounding too strongly. We expect home resales to stabilize near the current levels, although some further modest pullback may occur in the months ahead as payback for sales that may have been advanced during the rush to lock-in lower rates. Overall, we expect total 2013 home resales to be very little changed from 2012.