There are early signs of a “gradual correction” in the housing market following a period where consumer finances became “stretched,” Bank of Canada senior deputy Governor Tiff Macklem said in a speech last Thursday.

Canadian existing home sales fell in December, led by a drop in Vancouver, capping an annual decline in transactions, a national realtor group said.

Vancouver sales declined 5.3 per cent to 1,792 units in December from November, while across Canada, resales declined 0.5 per cent during the month to 35,386 units, the Canadian Real Estate Association said in a statement on Tuesday.

While the number of transactions dropped 17.4 per cent across Canada from a year earlier, the average home price rose 1.6 per cent to $352,787.

“Successive rounds of tightening mortgage regulations have kept the housing market in check during what has become an extended low interest rate environment,” Gregory Klump, the CREA’s chief economist, wrote in a separate report.

The average resale price in 2012 rose 0.3 per cent $363,740, and the total number of houses sold through the realtor group fell 1.1 per cent to 453,372, according to the group.

Tuesday’s report excluded figures for Quebec, which will be delayed until Jan. 22 at the request of the provincial real estate body, the group said in the report.

The CREA notes the correction in Canada’s housing market gathered momentum in December as the number of new listings slipped, prices moderated and the number of homes sold fell 17.4 per cent from a year earlier, the biggest drop-off in six months.

On a year-over-year basis, the CREA said Tuesday that 20,538 homes were sold across the country through its MLS system last month, down from 24,850 in December 2011, and 0.5 per cent lower than in November.

The increase in prices also continued to slow, tipping in at only 1.6 per cent from a year ago to $352,800 – about the level of overall inflation.

“The housing market is clearly in correction mode,” said Derek Holt, vice-president of economics at Scotia Capital.

“But this is certainly nothing even close to the U.S. and European experience and I don’t think we’re headed in that direction, but it’s still sizable.”

Analysts note sales are down by double digit margins since Finance Minister Jim Flaherty tightened mortgage rules in July to cool the market, adding that it a needed correction to avoid a bigger problem in future.

Klump said he believes the new rules, on top of three previous rounds of tightening, have had an impact.

Since July, the market has experienced contractions in sales, construction, building permits and property listings.

The only anomaly is prices, which have continued to rise, although at a more measured pace.

Source: The Province

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