Drop in January home sales may be beginning of long-expected market cool-down
View of a new housing development in Oakville, Ont. on Friday, Aug.26, 2011. Canadian home sales posted their biggest monthly decline in a year-and-a-half in January, suggesting the long-expected market slowdown may finally be on its way. THE CANADIAN PRESS/Richard Buchan
The Canadian Real Estate Association said Wednesday that sales of existing homes fell 4.5 per cent to a seasonally-adjusted 38,294 in January from 40,115 the previous month. It was the first monthly decline since August 2011 and the biggest drop since July 2010.
The monthly decline reversed a string of month-over-month increases in the fourth quarter of 2011 and returned sales activity to where it stood at the end of the third quarter, CREA said.
January sales on CREA's Multiple Listing Service were four per cent above levels reported in the same month of 2011 — the smallest year-over-year increase since last May. January sales were about even with the five- and 10-year averages for the month.
The real estate market strengthened in the second half of last year, driven by the unexpected continuation of low interest rates that encouraged buyer demand despite worries over global economic turmoil.
Many economists had expected the Bank of Canada to begin raising its key interest rate by the middle of 2011 but that didn't happen — which has also propped up home sales longer than anticipated.
However, January's figures suggest the market is showing signs of a "welcome moderation" in 2012, with even some of the previously hottest cities cooling down after nearly three years on a tear, said Bank of Montreal deputy chief economist Douglas Porter.
"While policy-makers and pundits have been wringing their hands in anguish over the possibility of a Canadian housing bubble, the facts on the ground send a much calmer message," Porter said.
"The housing market currently looks well balanced and is broadly moderating on its own accord."
The number of newly-listed homes edged down 1.4 per cent from December to January, pushing the market further into balanced territory.
A balanced market means there is a equilibrium between supply and demand and helps keep prices in check.
Sales activity was down in more than half of regional markets in January, with declines in many major centres, including Montreal, Ottawa, Toronto, Winnipeg, Calgary, Edmonton and Vancouver.
The national average home price rose 1.2 per cent year-over-year in January to $348,178, ranking it among the smallest increases of the past year.
However, year-over-year price comparisons to last January as well as in the coming months may not accurately reflect the overall trend as last year's prices were skewed higher by a run-up in high-end sales in Vancouver's priciest neighbourhoods, said Gregory Klump, CREA’s chief economist.
“Year-over-year comparisons in the national average price are expected to become volatile and may turn negative, reflecting average price developments in the first half of 2011 in Vancouver,” Klump said.
A 13.4 per cent pullback in sales in the expensive Vancouver market — and a 1.3 per cent drop in average prices — accounted for much of the decline in prices. Still, weighted average prices rose 2.7 per cent from the year-earlier period, with only seven of the 26 largest markets reporting a drop in prices from a year ago.
"On a regional basis, the biggest story is still Vancouver, although now it’s because activity in the city is coming back down the mountain," Porter said.
"Just as a spike in high-end sales distorted the average to the high side early last year, weaker sales in that space are now skewing the overall results lower."
Despite being down month over month in January, Toronto remains the hottest big urban market based on a year-over-year sales. Sales in Canada's largest city were up 5.2 per cent, while prices were nine per cent higher.
The results from Vancouver, which was once the source of fear of a housing bubble, suggest the market may be correcting on its own and can avoid a sudden downturn.
"This month’s decline is likely reflective of what will shape up to be a softer year in sales, especially when it comes to Toronto and Vancouver condos," said Jacques Marcil, senior economist at TD.
The condo markets in those big cities have been the source of particular concern as construction on new condos ramps up to a degree some economists have warned is unsustainable if demand drops.
"We anticipate growth will slow down in 2012 both in terms of sale volumes (a 0.5 per cent gain) and prices (a 2.5 per cent gain)," Marcil said.
However, also said he anticipates a harder landing in 2013, with both home sales and price growth turning negative as interest rate increases are expected to resume.
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