Canada may well be presaging the Australian property market with buying conditions in May falling well below expectations. And its the fault of the millenials of course:
New mortgage regulations which are now in full swing have stymied fringe buyers, particularly millennials. According to new data from credit bureau TransUnion, new mortgage originations among millennials in Canada fell by 19.5% between the last quarter of 2017 and the first three months of 2018.
As shown in the chart below, national home sales in Canada plunged by 16% Y/Y for the month of May. This was the worst decline since the great financial crisis in 2008 when home sales dipped 17% that May. Furthermore, total home sales of 50,604 marked the lowest total since May 2011.
And as sales continue to slide inventory is beginning to build. For sale inventory crept up by 4% year over year, increasing for the first time in three years, and the highest May increase since 2010.
Like Australia, Canada is facing much tighter borrowing conditions as new stress tests disqualify regular borrowers, who are now moving over towards private finance or non-bank lending.
‘The stress-test that came into effect this year for home buyers with more than a 20% down payment is continuing to suppress sales activity. But the extent to which it is side lining home buyers varies among housing markets and price ranges,’ said Canadian REA president Barb Sukkau.
According to CREA chief economist Gregory Klump the new stress test became even more restrictive in May, since the interest rate used to qualify mortgage applications rose early in the month.
‘Movements in the stress test interest rate are beyond the control of policy makers. Further increases in the rate could weigh on home sales activity at a time when Canadian economic growth is facing headwinds from US trade policy frictions,’ he added.
Nothing like a little trade war to topple over your property bubble eh?
Figure it oot Canada.