By Sunny Freeman, The Canadian Press
TORONTO – Home sales rose in August on a monthly basis for the first time since March but prices remained flat — signs of health in Canada’s real estate market that should deflate fears of a housing bubble.
There were about 32,800 transactions in August, up 4.1 per cent from July on a seasonally adjusted basis, the Canadian Real Estate Association said in a report Wednesday.
However, the number of units sold was down 22 per cent from 42,350 units in August 2009.
“High sales activity late last year and earlier this year borrowed from sales this summer and will continue do so over the coming months,” Gregory Klump, CREA’s chief economist said in the report.
“This makes the return to more normal levels of sales activity look like a steep downward trend.”
Many potential buyers raced into the market while mortgage rates were at historic lows and before changes to mortgage qualification standards in April.
In addition, buyers in the hot housing markets of British Columbia and Ontario rushed to buy before the new harmonized sales tax, which applies to real estate services and some home purchases that had previously been exempt, took effect July 1.
In July, sales fell 30 per cent from the year before, when the strong housing market led Canada’s economy out of recession.
Sales have been falling steadily in recent months as demand moderates and more owners put their houses on the market. But until last month, home prices had continued to rise on a monthly basis, leading some economists to question whether the market could experience a sharp downturn.
The average price of homes sold through the Multiple Listing Service last month was $324,928, little changed from $324,843 in August 2009.
Douglas Porter, deputy chief economist at the Bank of Montreal (TSX: BMO.TO), said the flat year-over-year numbers suggest home prices have finally started to moderate in line with falling sales.
“Average home prices were officially unchanged from year-ago levels in August,” Porter wrote in a report, adding that “we still expect that average prices will post some modest year-on-year declines by the end of this year.”
Before the August numbers were announced, there had been some renewed debate amongst economists as to whether Canada’s housing market was teetering on the edge of a U.S.-style collapse as prices continued to rise even as sales fell.
That led some industry watchers to warn that home prices could be artificially inflated and might soon see a drastic downturn.
Klump said the hangover from accelerated home purchases earlier this year were likely to persist into 2011, but won’t push the market to the brink of crisis mode.
And Porter said a renewed slide in longer-term mortgage rates in recent weeks will help to offset a slow but steady increase in the Bank of Canada’s overnight interest rate, which climbed to one per cent last week, sending banks’ prime rates and variable rate mortgages higher.
“While home sales are still nursing a bit of a hangover from the real estate party in the first half of the year, it looks like conditions are stabilizing,” he said.
“Looking ahead, sales are expected to remain on the soggy side with consumer confidence dimming, but should find support in still-low rates and steady job growth.”
In another sign of housing market health, the number of new listings was more than double the number of sales, a clear indication the market is now considered balanced, Porter said.
As a result, it would take nearly seven months for all the listings to be sold at the current pace — a slight improvement from July but still relatively high.