SmartHomeOwners

TORONTO: Canadian housing sales subsided in May, with an unusual plunge from April levels as consumers pushed deals ahead to beat the arrival of higher mortgage rates and stricter lending rules.

Seasonally adjusted home sales in May departed from historical averages to drop by 9.5 per cent nationally from near-record activity the month before, according to statistics released Wednesday by the Canadian Real Estate Association.

The figures suggest that the combination of tighter mortgage regulations _ which now require all homebuyers to qualify for a standard five-year, fixed-rate mortgage _ and rising interest rates pulled a number of sales forward into April that might otherwise have taken place later in the year, CREA said.

``May was the first full month in which sales activity was affected by these (mortgage rule) changes,'' CREA President Georges Pahud said in a statement.

The association said home sales dropped 4.3 per cent compared to May 2009, while new home listings rose 16.6 per cent from May 2009 but were down when compared with April.

The seasonally adjusted number of new listings dropped by four per cent from April, marking the first monthly decline in eight months. New listings had been climbing sharply, rising from a four-year low last September to the second highest-level ever in April.

Home prices were up 8.5 per cent in May, but that was a slower increase than has been seen over the past nine months.

``An accompanying decline in new listings and housing starts means these changes are also affecting the supply side, which will keep the market balanced and Canadian home prices stable,'' Pahud said.

Economists have widely predicted a slowdown in the housing market during the second half of the year. Many buyers hurried to close in late 2009 and the first half of this year to take advantage of record low interest rates.

The new mortgage rules that took effect in April and the impact of the harmonized sales tax being introduced in the hot housing markets of B.C. and Ontario in July also contributed to push sales forward.

May's drop in sales activity was seen in more than 70 per cent of local markets, but the lower national figure was dragged down primarily by fewer sales in Toronto, Vancouver and Ottawa.

Economist Gregory Klump says statistics gathered by the association suggest that home supply and demand was more balanced in some major markets in May, giving home buyers more choice and more time to purchase a house.

The total number of homes listed for sale on the MLS in May was up 5.4 per cent from last year, when the supply of homes for sales had started to decline.

``Homebuyers now have more choice and are likely be in less of a rush to purchase than they were recently, so the amount of time it takes to sell a home is expected to rise in the coming months,'' Klump said in a statement.

However, he added, the number of newly listed homes will retreat in response to rising prices and a more competitive sales environment.

``The outlook for the Canadian economy, employment, and mortgage market trends remain upbeat, so supply and demand will remain balanced on a national basis. Canada will avoid a U.S.-style home price correction.''

Douglas Porter, deputy chief economist at BMO Capital Markets, said after sales ``ran into a wall'' in May, activity is ``straddling the fine line between a sellers' and buyers' market.''

``Life in the fast lane is over for Canada's housing market. Now the question is whether it will stay in the middle lane or brake even more aggressively,'' he said.

``We suspect it will brake harder, although the ongoing revival in employment will likely keep the housing market from veering onto the shoulder.''