First-time buyer activity drops as market adjusts to new mortgage regulations
The Royal LePage House Price Survey was released today and It showed the average price of a home in Canada increased year-over-year between 1.8 to 4.8% in the third quarter of 2012.
Survey findings indicated that the average standard two-storey home in Canada increased 4% year-over-year rising to $403,747, while detached bungalows rose 4.8% to $366,773. Standard condominiums had an increase of 1.8% to $243,607. Most cities in Canada experienced modest price appreciation in the quarter, but fewer homes were sold compared to the same period in 2011.
“A drop in the number of homes trading hands typically precedes a period of softening house prices. Where there is reduced demand, those who want to sell their homes adjust their asking price to stimulate interest. During the third quarter, unit home sales were positive in July, fell 9% year-over-year in August and we are expecting September to show a decline as well,” said Phil Soper, president and chief executive, Royal LePage. “We had predicted this cyclical change early in the year, a natural market reaction after a period of strong expansion. Changes to mortgage regulations, which took effect on July 9th, accelerated the correction.”
In July, the Minister of Finance announced that the maximum amortization period for insured mortgages would be reduced to 25 years from 30 years. This was the fourth intervention in the mortgage market in just four years and the most impactful. Potential first-time buyers, which in a typical market represent one third to one half of all purchase transactions, felt the changes immediately.
“While hard-hit in the short-term, first-time buyers will adjust to tougher mortgage qualifications. The dream of homeownership is very much alive among young Canadians. They may remain renters for sometime as they save; some will opt for less desirable neighbourhoods and some will purchase smaller homes,” added Soper. “In the meanwhile, we will feel their absence in national sales statistics.”
Canadian consumers were bombarded with troublesome economic news from around the globe during the period, particularly in the early weeks of the third quarter. While this has been a drag on the nation’s housing market and contributed to a slowing in home sale transactions, consumer confidence appeared to rebound in September, which should support activity in the important fall market.
“Policy makers in Canada and the United States have confirmed that the current period of very low interest rates will continue, likely through 2013. This is very supportive of housing market activity and any downward pressure on home prices should be minimal,” said Soper. “And for the first time in six years, sustained positive news from the American housing market should leave Canadian’s more confident about our continued economic prosperity.”
National average house price changes do not always reflect the markets of individual cities, which are closely tied to their local economies. Case in point, some $29 billion in energy related investments are now underway in Alberta and Calgary is expected to lead the nation in economic growth through 2013. The city posted healthy price appreciation for both detached bungalows and two-storey homes, as predicted in previous Royal LePage House Price Surveys and Market Survey Forecasts.
“When the underlying economy of a city is sound and growing, house price appreciation is sustained. Calgary has enjoyed solid growth in home values this year. I have also been very pleased with the growth in commercial brokerage transactions seen in our Royal LePage Commercial business in the region,” said Soper.