Photo: James Bombales

Canadian home sales took a tumble in September, inching back 0.4 percent from August and falling 8.9 percent from the same period last year.

But according to one economist, sales numbers aren’t the best metric for tracking the health of the market.

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“Sales activity may get all the press but it’s the balance between that and the number of homes for sale that sets the tone for pricing environment,” writes Gregory Klump, chief economist of the Canadian Real Estate Association (CREA), in its latest data release.

Newly listed homes rose by 3 percent month-over-month in September, while the MLS Home Price Index was up 2.3 percent year-over-year. Roughly three-quarters of all local markets fell into what is considered “balanced territory” by CREA — a sales-to-new-listings ratio between 40 to 60 percent.

“In markets with an abundant supply of homes and slower sales activity, buyers have the upper hand when it comes to negotiations over price,” writes Klump. “However, in places where buyers are keen to make a purchase but there’s a shortage of homes for sale, sellers are in the driver’s seat when it comes to price.”

He adds that it will be interesting to see how the market responds to rising interest rates, given that more stringent mortgage rules were introduced in January.

The current rising rate environment, which will almost certainly result in higher mortgage rates, could put a damper on the housing market. The Bank of Canada hiked the overnight rate to 1.50 percent in July, and is widely expected to do so again later this month.

“The balance between the number of home buyers and suitable homes varies depending on location, housing type and price range,” writes Barb Sukkau, president of CREA. “Differences in market balance will likely come into sharper focus as interest rates rise and cause this year’s new mortgage stress-test to become even more restrictive.”

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