female homebuyer shakes hand with real estate agent in office
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Canada’s housing market shows little price growth over the last 12 months. With some market participants calling for an end to measures intended to help cool the market, a close look at the data is a necessary exercise.

The Teranet–National House Price Index, released Thursday, says the national house price index increased just 0.5% over the last year. The rate represents the smallest gain since November 2009, the report said, and is well below the inflation rate, which was 2% annualized in June.

Though the house price index saw monthly gains in May and June (0.5% and 0.8%, respectively) after eight months with no increases, the data indicate housing prices haven’t necessarily turned a corner since responding to policy measures intended to temper a previously too-hot market. (These include the mortgage stress test for uninsured mortgages and the introduction of a foreign buyers tax in parts of Ontario and B.C., along with earlier increases in mortgage rates.)

That’s because May and June typically have the strongest growth rates, the report said, but the recent monthly increases were “among the weakest in history” for those two months.

On the positive side, the weakness isn’t broad-based. Annual declines in home prices were greatest in Vancouver (–4.9%), Calgary (–3.8%), Edmonton (–2.6%) and Winnipeg (–0.4%), the report said. In contrast, in Central and Eastern Canada, prices showed annual growth that was “decent to strong.” For example, prices increased 2.8% in Toronto, 6.3% in Ottawa-Gatineau, 5.4% in Montreal and 2.7% in Halifax.

The results are reflected in the home resale market. “For example, the Vancouver market turned favourable to buyers at the end of last year, while the Toronto market remained balanced and Montreal’s market has never been this tight since 2005,” the report said.

That said, a recent rebound in home sales across the country (discussed below) was also felt in Western Canada’s cities, the report said, and will help limit price deflation in those areas.

For full details, read the Teranet–National Bank House Price Index.

As housing prices have cooled in recent months, some have called for housing-related policy measures to be eased.

The Ontario Real Estate Association, for example, is calling for less stringent mortgage rules in a rebuttal aimed at the head of the Canada Mortgage and Housing Corp.

OREA chief executive Tim Hudak said in a letter to federal policymakers that Ottawa should consider restoring 30-year insured mortgages, ease up on the interest-rate stress test, and eliminate the test altogether for those renewing their mortgages with a different lender.

In the letter to the House of Commons finance committee, Hudak took aim at comments made by CMHC president CEO Evan Siddall, who has been a vocal critic of those lobbying for eased rules.

He questioned Siddall’s logic on the 30-year mortgage restriction and said the association “strenuously” disagrees with his conclusion on stress tests for renewals.

Hudak said the more stringent rules, brought in to cool an overheated housing market, are making it harder for first-time buyers to enter the market.

Siddall, in a May letter to the committee, urged it to “look past the plain self-interest” of the parties lobbying for eased rules to protect the economy from “potentially tragic consequences.”

A compromise has been suggested by some economists—for example, changes to the stress test, not a full easing.

In a potentially positive sign for the housing market, a report released on Wednesday by Scotiabank Economics said mortgage credit growth picked up in recent months following a recent low in the second half of 2018 and a slow start this year.

Mortgage credit at chartered banks grew by 6.3% month over month in May, seasonally adjusted. April’s figure was 5%.

The report said the uptick is “in line with an apparent recovery in Canadian real estate markets, particularly in the Greater Vancouver and Greater Toronto areas, following the slump brought about by tighter mortgage underwriting standards in early-2018 as well as the introduction of foreign buyers taxes aimed at curbing speculative activity.”

Further contribution to the uptick likely comes from five-year mortgage rates, which have fallen recently, as the Bank of Canada isn’t expected to raise its key interest rate for the foreseeable future.

Despite the increase in mortgage credit growth, overall household credit growth at chartered banks decelerated slightly in May: flat consumer credit levels offset the pick-up in mortgage loans.

In particular, growth in home equity lines of credit (HELOCs) fell month over month in May by 1.3%—the first contraction in these loans since May 2016, the report said.

HELOCs remain on a slowing trajectory following strong increases through 2017 and 2018. Year-over-year growth in HELOC borrowing was 4.9%, compared to a recent peak of 6.7% in November. That’s the slowest annual expansion of HELOC borrowing since March 2017, the report said.

HELOC borrowing accounts for a large share of consumer credit, at about 47.1% in May compared to a recent peak of 47.4% in January.

Still, the report said that most Canadian households (86%) don’t have a HELOC, and only about 10% of Canadians have both a HELOC and mortgage.

For full details, read the report from Scotiabank Economics.