Canadian home sales figures in January dropped to their lowest level since 2009, a year when the after effects of the Great Recession were roiling economies around the world.
According to the latest data from the Canadian Real Estate Association, national home sales declined 3% month-over-month in January. While Canadian sales had seen tiny bumps throughout the final months of 2022, CREA noted this decline effectively erased all of December’s gains.
Spring is traditionally the busiest season for homebuyers, but there remains a lot of uncertainty in the health of Canada’s real estate market. While interest rates remain high, the Bank of Canada has cautiously suggested that inflation might finally be slowing down. If that trend continues, BoC governor Tiff Macklem says another rate hike might not be needed.
“Early 2023 feels a lot like 2019, where after a year in which it became harder to qualify for a mortgage, everyone was wondering if the market would pick up in the spring,” said Shaun Cathcart, CREA’s senior economist, in a statement. “In 2019, the market started off slow, as there wasn’t much to buy. It took off once spring listings start to come out.”
The average national home price, however, remains sluggish at $612,204. CREA’s latest figures found the average national sales price, when not adjusted for seasonal price fluctuations, dropped by 18.3% between January 2022 and January 2023.
Across much of Ontario and parts of B.C., prices are well below peak levels, while some major markets – including Calgary, Saskatoon and St. John’s – have barely dropped below their peak at all.
Analysts also weren’t surprised by January’s numbers given all the pressure put on Canada’s housing market, including a ban on foreigners buying Canadian homes and a tax to discourage Canadian homeowners from flipping their properties. The Bank of Canada also hiked interest rates by three-quarters of a percentage point in December and January.
“As such, falling sales and prices last month are not much of a surprise,” wrote TD economist Rishi Sondhi following the release of the CREA data.
Cross-country roundup of home prices
Here’s a look at select provincial and municipal average house prices as of January. Declines can be found across the board, with the most notable in Ontario (especially the Greater Toronto Area) as well as Barrie, but there are some notable increases. The Halifax-Dartmouth area, which has seen a surge of investor and homeowner activity throughout the pandemic, is carrying on its upward climb, along with Calgary and St. John’s.
*Some of the movements in the table above may be somewhat misleading since average prices simply take the total dollar value of sales in a month and divide it by the total number of units sold. The MLS Home Price Index, on the other hand, accounts for differences in house type and size.
When will Canada’s housing market turn around?
Homeowners, investors and experts alike are still trying to see how the chaotic and sometimes contradictory economic winds of 2022 will blow over the coming year. Unfortunately, even though spring selling season is a few months away, no one has a lot of clarity at the moment.
“We may have to wait another month or two to see what buyers are planning this year since new listings are currently trickling out at near record-low levels,” said Jill Oudil, CREA’s chair, “but this should change as the weather warms.”
TD expects housing activity could bottom out sometime before the summer of 2023 thanks to a combination of very high job growth, population growth and lower yields. That said, Sondhi wrote, tighter lending standards on federally regulated financial institutions might scuttle this prediction.
“Moreover, the level of new listings remains low, offering no signal (yet) that forced selling is meaningfully pushing up supply,” TD says. According to CREA, Canada’s national inventory is sitting at 4.3 months – close to where it was just before the first COVID-19 pandemic lockdowns, and around a month below the long-term average of five months.
That trend may not improve. Douglas Border, chief economist of BMO Financial Group, estimated that there will be 230,000 new starts in 2023 alone, down from just over 260,000 last year, a trend he called “historically solid” in a note to clients. That said, he did acknowledge a large pullback in housing starts in January.
Unfortunately, there is one other potential roadblock facing Canadian homeowners – the possibility of more interest rate hikes. It’s true that the Bank of Canada has taken a pause, but it also left the door open for more potential hikes if inflation didn’t cool off – and investors are betting on at least one more rate hike in 2023.
“Hope springs eternal that housing activity may be close to a bottom, but we suspect that the market is still digesting the incredibly aggressive rate hikes of the past year,” Porter wrote.