OTTAWA - Despite a slight recovery from August, home sales in September fell 15.1 per cent from a year ago due to tighter mortgage lending rules and an uncertain economy, the Canadian Real Estate Association said Monday.
The association said sales adjusted for seasonal trends in September were up 2.5 per cent from August — the first month-to-month gain since March.
Compared with September 2011, however, the number of deals across the country last month was down sharply, due in large part to a slowdown in Vancouver.
And sales activity in the market is expected to remain lower than year-ago levels for the remainder of the year, as potential buyers reassess how much they can afford after stricter mortgage rules took effect in July, said Gregory Klump, CREA's chief economist.
"To the surprise of no one, following the introduction of the most recent rule changes, sales activity ratcheted down," he said.
"The mortgage rule changes are working as they were designed to do which is to cool the housing market."
Finance Minister Jim Flaherty announced in July that the maximum amortization period for government insured mortgages would be reduced to 25 years from 30 years.
Using an interest rate of three per cent, Ottawa estimated it would increase monthly payments by $184 on a $350,000 mortgage, but save the borrower $33,052 in interest over the life of the loan.
It was the fourth time Flaherty tightened mortgage requirements in four years, but the measure was regarded as the one likely to be the most effective.
This round of changes impacted the market differently than in previous rounds of tightening because there was less time for buyers to act in between the announcement and the implementation, which "priced many people out of the market," Klump said.
"In the past what you saw was a pull forward and then they would drop well this time we saw it as a drop and then the question remains: where does it go from here?"
A report from RBC Economics suggested the changes will continue to exert intense downward pressure on home sales, which will dissipate by year-end.
"We expect both resale activity and home prices in Canada to be flat or slightly negative in 2013," the report added.
TD Bank economist Francis Fong said the month-over-month gain only partially offset August's drop with sales off their peaks in most markets across the country.
"The Canadian housing market has clearly lost some of its lustre," Fong wrote in a note to clients.
"That being said, with interest rates remaining sufficiently accommodative, we do not anticipate any precipitous decline in housing activity in the near term. Rather, we expect a gradual unwinding of the imbalance in both sales and prices over the next few years."
The sales report came as the Conference Board of Canada said that most Canadian cities are facing lower housing starts in the coming years as markets slow, with only 10 of the 28 cities showing positive long-term expectations.
CREA said Monday there was still a balance between the number of homes for sale and the number of buyers in September, but conditions have eased.
The national sales-to-new listings ratio, a measure of market balance, stood at 49 per cent in September 2012, remaining near the midpoint of a balanced market.
Even though sales were down from a year ago, the national average home price was up 1.1 per cent to $355,777 in September from a year earlier.
The association said Vancouver, the country's most expensive residential real-estate market that is also cooling off quickly, skewed the national results.
Excluding that city, the national average price was up 3.4 per cent from a year ago.
But the MLS HPI home price index, which also takes into account other factors, showed its smallest gain since May 2011, rising by 3.9 per cent in September.
The MLS HPI in Vancouver posted a 0.8 per cent decline year-over-year in September. In contrast, Calgary had a 6.5 per cent increase in the index, the Toronto area was up 5.7 per cent, the Montreal area was up 2.2 per cent and the Fraser Valley in southern British Columbia was up 2.1 per cent.
Regina had the biggest increase among markets measured by the HPI, with a gain of 14.2 per cent from September 2011.