Canadian home resales slowed in April from the previous month while new listings climbed, suggesting the country's real estate market could soon start to cool after a year of surging prices.
Even so, sales of existing homes still showed a big jump from the same month last year, according data on Monday from the Canadian Real Estate Association, with prices rising at a double-digit pace year over year.
Residential housing has become an important driver of the Canadian economy, even during the recession, spurred partly by low interest rates. It also gave rise to a fiery debate on whether the housing sector was forming a bubble, a charge that policymakers swiftly downplay.
All told, 42,078 homes changed hands in April, up 20.1 percent from the same month last year. But sales slipped 2.6 percent from March, the third decline in four months, and have fallen 6.8 percent from the peak reached in December.
The cooler pace of activity is in line with a long-held view by many economists, who see the market slowing after the spring as more homes are put up for sale and interest rates begin to rise.
Some homeowners may also move sooner in order to avoid extra costs associated with new, harmonized sales tax (HST) regimes, set to begin July 1 in Ontario and British Columbia, and this could add to a front-loaded year of sales and pricing activity.
"Prices may see one last uptick in the next few months, but are expected to simmer down notably in the second half," said Doug Porter, deputy chief economist at BMO Capital Markets.
"Indeed, outright price declines are certainly a very real possibility in Ontario and B.C. amid much more moderate activity after the HST kicks in."
CREA said a slowing market in British Columbia was responsible for more than half the decline for the year. Ontario and Quebec, two of the country's larger markets, remained close to record levels in April.
The number of new listings rose to 99,901, surpassing the previous April record, set in 2008, by 0.6 percent. The average national price rose 12.2 percent to C$344,968 ($331,700).
The rising supply of homes for sale could dampen prices in the months ahead. Sales may also cool as higher mortgage rates and rising prices chip away at demand, and overall housing investment falls into line with the broader economic recovery.
"The pace of moderation is expected to be measured and orderly," said Millan Mulraine, a senior strategist at TD Securities.
BUYERS OPT FOR FIXED-RATE MORTGAGES
Canadian lenders have increased posted mortgage rates several times recently, though a few have since pared their rate increases after government bond yields fell during the European debt crisis.
The Bank of Canada is expected to push interest rates higher, perhaps as soon as June according to a Reuters poll. It has also recently said it expects housing investment to "weaken markedly" for the remainder of the year and well into 2011.
A Royal Bank of Canada survey found fixed-rate mortgages are still the most common choice among people likely to buy a home within the next two years. The survey found 44 percent favored a fixed-rated loan while 16 percent prefer a variable-rate mortgage.
But combination mortgages, which bring together fixed and variable rates, are increasing in popularity among homeowners, suggesting consumers are trying to get the best of both worlds with interest rates expected to rise soon.
The survey found 40 percent of Canadians who are likely to buy a home within the next two years plan to take out a combination mortgage, up 8 percentage points from last year.
The survey also found that 66 percent of current homeowners said they were concerned about the impact of interest rate hikes.
SOURCE: Reuters and Sympatico