Why Did Canadian Home Sales Decrease in August?

By The A-Team | Sep 24, 2018 | Fort McMurray- Buyers Advice

The Canadian Real Estate Association released sales figures for August 2018 this week, and in a bit of good news, numbers were up from July, rising a slight 0.9%. However, with year-over-year sales decreasing by 3.8%, there's a lot more to the story. Until now, analysts have forecast the second half of 2018 to be a recovery phase after the first half was stunted by revamped mortgage stress tests, but that seems to be changing.

While earlier predictions looked at national trends to make a forecast, the new report shows that the local nature of real estate takes precedence:

Expect home prices to bounce back in 2019, especially in Ontario

“Improving national home sales activity in recent months continues to obscure significant differences in regional trends for home sales and prices,” says Gregory Klump, CREA’s Chief Economist. “Moreover, recent monthly sales increases are diminishing, which suggests that the recent rebound may be starting to lose steam.”

While the national home supply is sitting at 5.2 months – right in line with the long-term average – supply in the GTA dropped. As supply continues to be an issue in the GTA, high prices will prevent families from moving-up and first-time buyers from getting into the market. Via blog.newinhomes.com

August 2018 numbers were down primarily due to the drop in the British Columbia market. The Vancouver and GTA areas likewise have the potential to disproportionately influence national statistics.

This goes to show the inherent unpredictability of a broad real estate market. However, as stated in Better Dwelling, it's important to consider that forecast revisions are normal, if not expected:

Canadian Real Estate Association Lowers Sales Forecasts For 2019… Again

Forecasting is a tricky task, and revisions are fairly normal for most organizations. Since a forecast is based on everything you know at the time, a forecast is subject to change as new details emerge. A year end forecast with three-quarters of the year in the bag is a little easier, since you’ll adjust your targets. That said, we did say the forecast in 2017 didn’t make much sense, since it ignored changes to credit capacity. Point is, don’t rag too hard on the fact that they were revised, it’s actually pretty normal.

Canadian real estate sales will drop in 2018, and expectations for 2019 have cooled. CREA is forecasting 462,900 sales across Canada by year end, down 9.8% from last year. In 2019 they expect sales to rise to 472,700, up 2.1% from the 2018 forecasted number. Both numbers are down significantly from last year, and well below the 10 year average for sales. h/t betterdwelling.com

The new forecast predicts 2018 sales to end up falling under 2017, but 2019 sales to be considerably better. However, even a projected 5.3% increase will keep 2019 below 2017 levels.

At this point, it's known that a combination of stress test rules and interest rate hikes are responsible for the weaker market. But the overall decrease in home sales doesn't apply to the above-54 demographic:

Are baby boomers buying homes for their kids?

While younger generations struggle to afford a home in Canada, older generations are seemingly taking out mortgages left and right. The Silent/Pre-War Generation (ages 73-93) saw a 65% increase in mortgages issued, year-over-year. Mortgages among Baby Boomers (ages 54-72) jumped 18%.

There are a couple things that can be happening here. The older generations could be remortgaging for retirement, or they are helping their kids and grandchildren with home purchases.

This doesn’t necessarily mean the younger generations are having homes bought for them. Boomers could be investing in small homes and/or condos for their kids to live in, and have them paying the mortgage (rent). This is a smart way for older generations to invest without the responsibilities of being a landlord. read more at blog.newinhomes.com

Given the numbers, it comes to reason that the aforementioned growth in 2019 will be from older homebuyers, as economic factors keep younger generations out of the market.

Headshot of blog admin

The A-Team

RE/MAX® Fort McMurray's #1 Real Estate team of hard-working, talented REALTORS® who specialize in helping you successfully sell or buy.