TORONTO â€” Home sales, one of the pillars of the economy last year, are not going to be as big of a driver this year as the effect of new federal mortgage measures fully kicks in, the Canadian Real Estate Association said Monday.
The real estate industry accounted for roughly 12 per cent of the country’s GDP in October, the most recent monthly data available, according to Statistics Canada.
But Gregory Klump, the chief economist for the Canadian Real Estate Association, said he expects home sales aren’t likely to be as big of a contributor to the economy in 2017.
“New regulations mean that in order to qualify for a mortgage, homebuyers will either have to save longer for a bigger down payment or purchase a lower priced home,” Klump said in a statement.
“In urban centres where the latter are in short supply, that’s likely to translate into fewer sales.”
Ottawa tightened mortgage rules in October, including requiring that all insured mortgages undergo a stress test to determine whether borrowers are still able to make mortgage payments if circumstances change, such as interest rates rising or incomes declining. Such tests were previously not required for fixed-rate mortgages longer than five years.
TD economist Diana Petramala says it will take some time before the full impact of the changes materializes. That’s because even though the regulations took effect last October, they don’t apply to those who were pre-approved for a mortgage prior to the rules being implemented.
“As such, the effect may not be fully felt until January,” Petramala said in a research note.
BMO economist Robert Kavcic agrees that real estate will account for a smaller part of Canada’s GDP this year.
“One of the big contributors has been Vancouver, and just through the last four or five months the market there has already started to correct,” said Kavcic.
The real estate association, which represents more than 100,000 real estate brokers, agents and salespeople, also released data for last month showing that home sales were up 2.2 per cent compared to November, rebounding partially from a big drop following the introduction of the new mortgage rules.
The number of homes trading hands posted the biggest monthly retreat in more than four years from October to November, the trade group said.
On a year-over-year basis, home sales were down five per cent last month compared to December 2015, when they reached the highest level for that month.
Annually, the number of homes that changed hands was up 6.3 per cent last year compared with 2015, as sales started out strong before softening.
The MLS home price index in December was up 14.3 per cent compared with a year ago, while the national average sale price climbed 3.5 per cent year-over-year.
Supply continued to tighten, with new listings down in more than half of all local markets.
The number of homes newly listed for sale slipped three per cent from November to December, with B.C.’s Lower Mainland, Calgary and the Greater Toronto Area seeing the biggest declines.
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Alexandra Posadzki, The Canadian Press