Canadian housing activity continued to cool in October. On the heels of rising interest rates, mortgage stress tests, and the recently announced curtailing of Home Equity Lines of Credit, a barrage of demand side measures have put a dent in the resilient housing market.

Per the Canadian Real Estate Association, home sales fell 3.7% year over year in October. It was the fewest October sales since 2013. The association noted, “While sales were down year over year in slightly more than half of all local markets in October, lower sales in Greater Vancouver and the Fraser Valley more than offset the rise in sales in the Greater Toronto Area (GTA) and Montreal by a wide margin.”

Overall, market conditions have been deteriorating, leading to decelerating prices across the board. Ottawa and Montreal remain arguably the two strongest markets, where leverage has been, for the most part, kept in check. For example, the share of new uninsured mortgages with a loan to income above 450% sits at 8% in Ottawa and 9% in Montreal. This pales in comparison to Vancouver & Toronto where the number of leveraged borrowers sits at 38% and 28% respectively.

Not surprisingly, Ottawa & Montreal have been less impacted by the recent tightening of mortgage credit. As a result, home prices are still inching upwards per the MLS benchmark. Prices in Montreal have inched higher by 1.46% over the past three months. In comparison home prices in Vancouver have declined by 3.34%.

Canadian home price change
Canadian home price change per the MLS benchmark.

The shifting landscape has encouraged some activity away from troubled areas such as Vancouver and into safer markets such as Montreal & Ottawa where risk of home prices declines are much more subdued.

However, with overall buying activity fading across the nation and mortgage credit growth slipping to an eighteen year low, the health of the typical household will be important to watch moving forward. This has prompted concerns from the National Bank of Canada which voiced their opinion in a recent report, suggesting “40% of the 26 markets covered by Teranet-National Bank are showing price drops over the past six months, the worst diffusion since 2010. A pronounced decline in house prices in certain regions has been highlighted as a potential downside risk to the outlook in the recent MPR. We’re not there yet, but the present trend has caught our attention. If things don’t stabilize soon, an eroding wealth effect for consumers will become a headwind to growth in 2019.”

price changes Canadian Real Estate
Source: National Bank of Canada.