So far it’s looking like a soft landing for Canada’s housing market, analysts, economists and realtors generally agree, despite the fact home sales were down 17.4 per cent in December over a year earlier, according to figures released Tuesday by the Canadian Real Estate Association.
With prices up an average 1.6 per cent across Canada in December year over year — six per cent in Toronto — housing experts are looking to the spring market, the busiest time of year for home sales, as the best barometer of where the housing market is ultimately headed.
So far it is “defying gravity and logic,” says Queen’s University real estate expert John Andrew.
“It appears that sellers are refusing to drop their prices, clinging to the elevated home prices they have grown accustomed to,” while buyers have headed for the sidelines, anticipating that interest rates will remain stable but house prices drop.
“The result is standoff between vendors and buyers, and homes are simply not changing hands.”
The cooling of the Canadian market — with the most pronounced downturns in sales hitting Vancouver (31.1 per cent year over year in December) and Toronto (down almost 22 per cent annually) — “is just what the doctor ordered,” says Bank of Montreal economist Sal Guatieri.
Just since July, when Ottawa introduced tighter mortgage lending rules restricting amortizations to 25 years instead of 30, house sales across Canada have declined 6.6 per cent.
With a typical house in Toronto now costing about seven times median income, and a staggering 10 times median income in Vancouver, the cooling of the market should allow wages to start to catch up, says Guatieri.
“If we do see the spring market roaring back, in some ways we would be comforted, but I think we’d be more worried about the possibility of a bubble and that could trigger a further tightening of mortgage rules which could hit as interest rates do start to move up over the next few years.”
Housing analyst Ben Rabidoux agrees “the spring market is going to be huge” in terms of telling where the market is heading. He thinks it’s too early to know if Vancouver and Toronto can avoid hard landings and substantial price declines, given baby boomers aren’t driving sales in big numbers anymore and the new mortgage rules have knocked buyers out of the market.
“A soft landing and a crash both start the same way.”