Canada's Housing Bubble

Sunny Freeman The Canadian Press

Toronto - Canadian home sales picked up in January from the month before and should accelerate further before tighter mortgage rules come into effect in March, says the Canadian Real Estate Association.

About 42,379 homes were sold on CREA's Multiple Listing Services across the country, up 4.5 per cent from the 40,558 sold in December.

While sales were down 6.6 per cent last month from a record level reached last January, the national average price rose 4.5 per cent year-over-year to $343,675.

CREA suggested the figures indicate that buyers were willing to pay premium prices to snap up a house before a March 18 deadline that will put an end to the longest 35-year amortization mortgage periods, in an effort to curb consumer debt. The changes limit amortization periods to a maximum of 30 years, making mortgage payments more expensive each month.

This year's real estate market appears poised to reflect a slightly less distorted version of last year, when sales spiked in the early months of the year before dropping to a trough in the summer as a series of regulatory changes impacted the market.

Sales activity kicked off the year on stronger footing, led by Toronto and Vancouver. On a seasonally adjusted basis, home sales reached the highest level since April 2010, CREA said in its monthly report Tuesday.

And using last year's market pattern as a guide, the association predicted activity will be even more robust in February.

"We anticipated the recent announcement of tighter mortgage regulations, which will come into effect this March, would pull forward sales activity into the first quarter of 2011, particularly in some of Canada's more expensive housing markets," said Gregory Klump, CREA’s chief economist.

"The sharp rise in sales activity in Toronto following the announcement provides early evidence confirming this."

However, it appears that the anticipated influx of buyers into the market will be offset by a growing number of new listings, keeping the market balanced.

This January marked the first time since 2007 that new listings more than doubled in the month compared to December. As a result, seasonally adjusted new listings rose 3.9 per cent from December levels, the largest monthly gain since March 2010, CREA said, adding that it had expected more listings in early 2011 as sales and prices have been stable since last fall.

Meanwhile, the association representing some 100,000 Realtors used the opportunity to warn the government that it should hold off on additional tightening measures to curb mortgage debt until the impact of the most recent changes are known.

"It will take some time before the longer-term impact of the latest mortgage regulations on the housing market can be known," said CREA president Georges Pahud.

"For that reason, further action shouldn't be taken until the impact can be measured," he said in a release.

A powerful driver of economic recovery, the real estate market kicked off last year on a tear as buyers rushed into the market in advance of higher interest rates, new mortgage rules and a new harmonized tax regime in two provinces.

Some reports have warned that when interest rates rise, which many economists expect in the middle of this year, Canada's real estate market could tank.

In the gloomiest report to date, Capital Economics analyst David Madani said earlier this month that house prices were just a few interest rate hikes away from a 25 per cent correction over the next three years.