Weak economy hurts Montreal resale market

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While Montreal sales show improvement, rising three per cent in August — with another slight rise expected for September — they continue to lag  behind those in other cities.

MONTREAL – Weak economic growth and job creation in Quebec have prevented  Montreal’s sluggish home resale market from rebounding like other large  Canadian cities since the July 2012 change in federal mortgage rules.

“The general economy is impacting employment and employment has  impacted resales,” said Dominic St-Pierre, Royal LePage Real Estate  Services’ Quebec region director. “This is the main reason why the real  estate market hasn’t performed as well in Montreal compared to other  markets.”

Described in a recent report by the Quebec Federation of Real Estate  Boards as an “important turning point for the real estate market in  Quebec,” the tighter rules precipitated a 13 per cent drop in Montreal  housing sales between August 2012 and July 2013.

The 2012 tightening of rules on insured mortgages — the fourth since  2008 — reduced the maximum amortization period to 25 years from 30, a  change equivalent to a 0.9 per cent rise in interest rates.

But while Canada’s two largest real estate markets by transaction  value also saw similar declines during that 12-month period, sales of  existing homes in Vancouver and Toronto have roared back in recent  months with double-digit growth on an annual basis.

Last month’s resales soared 19 per cent in Calgary, 30 per cent in  Toronto and 64 per cent in Vancouver — albeit in comparison with an  exceptionally weak September 2012 — real estate boards reported this  week.

Since Montreal’s resale market wasn’t hit quite so hard as  Vancouver’s during August and September 2012, one wouldn’t expect such  spectacular growth. But while Montreal sales show improvement, rising  three per cent in August — with another slight rise expected for  September — they continue to lag behind those in other cities.

“The tightening of the mortgage rules certainly led to a drop in  sales since August 2012, this is absolutely true,” observed National  Bank senior economist Marc Pinsonneault. “But why, in the last few  months in Canada, were the sales able to rise when this hasn’t really  been the case in Quebec?”

Economists point to Quebec’s sluggish growth, along with lacklustre  job creation. Hit by a weak U.S. market for exports, BMO Capital Markets is forecasting 1.1-per-cent growth in Quebec this year, below the  national average of 1.6 per cent.

“I think the relative economic performance plays a big role,” said BMO senior economist Robert Kavcic.

“Quebec has probably been the single most disappointing province over the past say, year and a half in terms of economic performance.”

In recent months, Montreal’s unemployment rate surpassed Toronto’s  for the first time in several years, rising to 8.4 per cent compared  with the national average of 7.1 per cent, reports BMO.

Pinsonneault also points to a rise in the rate of personal  bankruptcies and proposals to creditors in Quebec — which recently  passed Atlantic Canada as the highest in the country.

“The personal bankruptcy rate is growing in Quebec and this is  running counter to what we’re seeing in the majority of other regions in Canada,” he said. “We have the tendency to think this is related to  weak job creation since 2011.”

Paul Cardinal, manager of market analysis for the Quebec Federation  of Real Estate Boards, said the change in mortgage rules had the  greatest impact on provincial housing sales, erasing what was “a clear  upward trend,” with “11 monthly increases in 12 months.”

However, he agreed that Quebec’s weak employment growth “probably has an effect, as the rebound hasn’t been as strong in Montreal as in other cities.”

SOURCE:The Montreal Gazette

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