Cheaper financing and talk of the end of rate hikes improved markets across the country. Canadian Real Estate Association (CREA) data shows rising home sales in December. Diving into the data revealed a much more mixed picture though, with perceived improvements masking further erosion from last year. The conditions have economists at BMO warning investors these improvements aren’t enough to halt price declines, at least in the near-term.
Canadian Real Estate Markets Tightened, But Worse Than Last Year
Canadian real estate sales improved on a relative short-term basis—but remain weak. December’s seasonally adjusted home sales were 8.7% higher than a month before. Actual, unadjusted sales were a more modest 3.7% higher. An improvement, but not much of one—especially considering that last year was incredibly slow.
A similar picture was seen when it came to inventory. December saw seasonally adjusted new listings fall 5.1% from November. Actual, unadjusted new listings were 5.8% higher than the same month last year. Once again, the picture of month-to-month activity shows a relative tightening, but the market loosened from the same month last year.
Canadian Real Estate Improvements Not Enough To End Falling Prices
There’s a mix of reads on what this actually means, and timeline context means a lot. Generally, it was interpreted as a firming of the market by most experts. Prices reacted more like one would expect from the unadjusted data points—a sentiment reflected by BMO in their client research note this afternoon.
“The mild re-tightening in the market last month was not enough to stabilize prices, at least not yet,” explained Douglas Porter, chief economist at BMO.
He points to the CREA MLS HPI Index, a.k.a. The benchmark price of a typical home. Stressing that it adjusts for both quality and sales composition, the benchmark price fell another 0.8% in December. It marks the fourth consecutive drop, and prices are now down 13% from the record high reached in February 2022.
Social media may be filled with an ambitious outlook, but the industry isn’t so sure. BMO points out that CREA’s latest forecast showed tempered expectations. The bank agrees.
“Our official call is for sales to be roughly flat in volume terms this year, and for the HPI to dip another 4% on average (after a 5.9% drop in 2023),” warns Porter.
Though not without a caveat, adding “…but the sudden drop in long-term rates suggests the risks to those calls are to the high side.”
“A potential stirring in the housing market may be one of the key reasons the Bank of Canada is doggedly sticking with a hawkish narrative, concerned that a quick turn in housing could inflame smoldering inflation pressures.”
Link: https://betterdwelling.com/canadian-real-estate-markets-improved-but-price-are-still-falling-bmo/
2024 01-24 
