Resale housing market declines in December, CREA reports
OTTAWA – Sales via its Multiple Listing Service (MLS) fell for the fourth consecutive month in December, the Canadian Real Estate Association (CREA) has reported, adding they note only fell 2.5% from November, they were down 19% from December 2017. For the year, sales were at their lowest annual level since 2012.
The realtors’ group noted transactions declined in about 60% of all local markets in December, led by lower activity in the Greater Vancouver Area (GVA), Vancouver Island, Ottawa, London & St. Thomas, and Halifax-Dartmouth.
Actual activity was down 19% year-over-year in December 2018 and stood almost 12% below the 10-year average for the month of December. Sales were down from year-ago levels in three-quarters of all local markets, led overwhelmingly by the Lower Mainland of British Columbia, the Okanagan Region, Calgary, Edmonton, the Greater Toronto Area (GTA) and Hamilton-Burlington.
CREA attributed the decline, at least in part, to elevated sales in December 2017 as buyers rushed to purchase in advance of the new federal mortgage stress test that came into effect on 01 January 2018.
“What a difference a year makes,” said CREA president Barb Sukkau. “Sales trends were pushed higher in December 2017 by home buyers rushing to purchase before the new federal mortgage stress-test took effect at the beginning of 2018. Since then, the stress-test has weighed on sales to varying degrees in all Canadian housing markets and it will continue to do so this year.”
“The Bank of Canada recently said that it expects housing activity will stay ‘soft’ as households ‘adjust to the mortgage stress-test and increases in mortgage rates’ even as jobs and incomes continue growing,” CREA chief economist Gregory Klump added, opining, “Indeed, the bank’s economic forecast shows it expects housing will undermine economic growth this year as the mortgage stress test has pushed home ownership affordability out of reach for some home buyers.”
The number of new listings remained little changed in December from November, with declines in close to half of all local markets offset by gains in the remainder.
With sales down and new listings steady in December, the national sales-to-new listings ratio eased to 53.3% from to 54.8% in November. This measure of market balance has remained close to its long-term average of 53.5% since the beginning of 2018.
Based on a comparison of the sales-to-new listings ratio with the long-term average, about two-thirds of all local markets were in balanced market territory in December 2018.
There were 5.6 months of inventory on a national basis at the end of December 2018. While this remains close to its long-term average of 5.3 months, the number of months of inventory has swollen far above its long-term average in Prairie provinces as well as in Newfoundland & Labrador. By contrast, the measure remains well below its long-term average in Ontario and Prince Edward Island. In other provinces, sales and inventory are more balanced.
The actual (not seasonally adjusted) national average price for homes sold in December 2018 was just over $472,000, down 4.9% from the same month in 2017. The decline reflects how the jump in sales in December 2017 in advance of the stress test was more pronounced in more expensive markets.
The national average price is heavily skewed by sales in the GVA and the GTA – this country’s most active and expensive markets – and excluding them trims the national average price to just under $375,000.
In his research note, Rishio Sondhi of TD Economics pointed out the weakness seen in December was broad-based, with sales down in every province except Newfoundland & Labrador. The national average price also fell for the third straight month in December and was down 5.0% year-over-year.
“Canada’s housing market has lost some steam,” he said. “December was a fairly weak month for housing activity, with sales and prices pulling back and no growth in listings. The broad-based nature of the decline suggests that rising interest rates and a tighter lending environment are impacting markets across the country.”
The Bank of Canada – which changed its characterisation of the housing market to “weaker than expected” from “stabilising” – said the state of housing will be one of the main factors guiding the course of interest rate policy.
“On this score, December's weak report augurs for continued patience by policymakers,” Sondhi said, adding, “For 2019, our forecast calls for Canadian sales to basically tread water after 2018’s plunge, as the impact of rising borrowing costs and tighter lending conditions are countered by strong population gains and on-going job growth. Still, the level of sales will remain relatively low compared to recent years. Prices should edge higher, given balanced conditions across the country, reflected in a national sales-to-listings ratio near its long-term average.”