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