Ahead of mortgage regulation crackdown, home sales rise

It's currently a bit more difficult for prospective or aspiring homeowners to gain mortgage approval, as lenders want to avoid the lending crisis that sent the U.S. real estate market into a tailspin back in 2009. But prior to the more stringent regulations going into effect, purchase activity crept higher in October, according to recent data made available via the Canadian Real Estate Association.

Home sales nationally rose roughly 2.5 percent during the first full month of autumn compared to September, CREA reported. In fact, in 60 percent of the markets analyzed, there was increased purchase activity. Unadjusted, sales increased on a year-over-year basis as well, up 2 percent from the corresponding month in 2015.

Gregory Klump, CREA's chief economist, noted how the new mortgage rules put pressure on some aspiring owners to get off the sidelines.

"First-time home buyers looking to get into the market before having to face tougher mortgage eligibility criteria had only two weeks to do so following the Finance Minister's announcement of tighter mortgage regulations in early October," Klump explained. "Early evidence suggests that the influence of tighter mortgage regulations on sales activity has been mixed."

How will market respond?
He further stated that government officials will definitely want to keep an eye on how the residential real estate market responds to the more restrictive lending rules, given the economic uncertainty that's been evident globally and in the U.S., in particular, following the culmination of the race for the White House. In the fortnight after Election Day, which takes place the first Tuesday of every November, 30-year fixed-rate mortgages topped 4 percent, according to government-backed lending giant Freddie Mac. On the surface, rates in this range are quite affordable, particularly compared to where the average has been historically, for an extended stretch averaging in the double digits during the 1970s as an example. However, FRMs  had been hovering in the 3.5 percent range throughout 2016, and had yet to reach 4 percent in 2016, the last time being December 2015.

U.S. real estate experts speculate that, similar to what may happen in the aftermath of tighter mortgage regulations in Canada, loan and refinance requests may diminish due to the reduced ability to save money via lower interest rates.

Inventory levels improve modestly
Meanwhile, one area of opportunity that improved for home seekers in Canada was selection. Listings climbed almost 2 percent in October compared to September, CREA reported, led chiefly by an uptick in for-sale signs in the Greater Toronto Area. Around 60 percent of local markets also experienced an increase in supply. This brought the sales-to-new listings ratio to 62.9 percent, a slight growth from 62.4 percent during the previous month. Anything between 40 and 60 is an indication that the market is balanced, meaning a sufficient amount of properties is available in accordance with demand.

The slight growth in inventory appears to be more due to current homeowners putting their houses on the market, as opposed to newly built residences going up for sale, as housing starts barely budged in October. Construction firms broke ground on approximately 192,930 residential housing units over the 31-day period on a seasonally adjusted annual basis, according to the Canada Mortgage and Housing Corporation. In September, starts totaled a seasonally adjusted annual total of 219,363. The biggest drop-off was evident in the city, falling more than 12 percent.