Canadian home sales started off the year at a torrid pace, fuelled by Vancouver and Toronto, but the Canadian Real Estate Association says sales in the country's hottest markets are expected to slow in the second half in the face of high prices and a shortage of available properties.
"Activity should begin to rebalance away from B.C. and Ontario as supply shortages put upward pressure on home prices and constrain transactions even as housing demand remains strong in these provinces and interest rates remain low," the association said in its latest outlook Wednesday.
"Accordingly, sales activity over the second half of the year is expected to ease in B.C., Ontario and on a national basis."
Still, due to the strong start to the year, the association raised its full-year forecast for home sales to a record 536,400, an increase of 6.1 per cent. That compared with its March forecast calling for an increase of just one per cent to 511,400.
The new forecast came as the association reported that home sales through its MLS system dropped 2.8 per cent in May compared to the month before. But compared with a year ago, sales in May were up 9.6 per cent and stood 15.1 per cent above the 10-year average for the month.
TD Bank economist Diana Petramala said even with the drop in sales in May, the spring selling season has been a hot one for Ontario and British Columbia.
"In fact, May's decline looks more like a supply story rather than a demand story, with not enough homes on the market to fulfil what appears to be insatiable demand," Petramala said.
For May, the number of newly listed homes fell 3.2 per cent.
Waterloo Region also is experiencing a limited inventory of homes for sale. The number of active listings in Kitchener and Waterloo at the end of May was down 26.1 per cent compared to a year earlier. In Cambridge, listings were down 43.2 per cent. The housing market in Hamilton and Halton is also hot.
The national sales-to-new-listings ratio climbed to 64.8 per cent in May, suggesting a seller's market and the highest reading since October 2009.
The real estate association says a ratio between 40 and 60 per cent is generally consistent with a balanced market.
The national average price of a home sold in May was $509,460, up 13.2 per cent from a year ago.
Excluding Vancouver and Toronto, the average price for a home sold in May was $375,532, up 9.1 per cent from May 2015. The average price for Canada, excluding the provinces of British Columbia and Ontario, was $310,007 in May, down 0.7 per cent year over year.
The average sale price in Kitchener and Waterloo last month was $378,248, up 7.3 per cent from a year earlier. In Cambridge, it was $377,779, up 12.6 per cent.
Last week, the Bank of Canada warned that house prices in Vancouver and Toronto were climbing at an unsustainable pace and that they had outpaced local economic fundamentals.
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