Canada’s housing market is off to a cold start in 2023, as both homebuilding and sales activity show multi-year lows.
The Canada Real Estate Association (CREA) said Wednesday that homebuying hit a 14-year low for the month of January. Sales volume was 37.1 per cent below the same month last year, the second-best January ever on record.
Sales were down three per cent on a month-over-month basis, which CREA said effectively gave back small gains seen in December 2022.
In non-seasonally adjusted terms, CREA said the national average home price in Canada was $612,204 in January, down 18.3 per cent year over year. CREA’s benchmark Home Price Index is now down 15 per cent from the peak seen in February 2022.
Prices drops are steeper in some Ontario and B.C. markets, but CREA flagged Calgary, Regina and Saskatoon, and St. John’s, N.L., as some cities where prices are holding steadier.
Some East Coast markets appear to have already hit their bottom and are seeing prices trend up on a monthly basis, CREA noted.
TD Bank Economist Rishi Sondhi said in a note to clients on Wednesday that the housing market had “a lot to contend with” in January, factoring in the implementation of a new foreign buyer ban and anti-flipping tax from the federal government.
In addition, the Bank of Canada continued its interest rate hike campaign with a cumulative 75 basis points of increases to its policy rate across December and January.
“As such, falling sales and prices last month are not much of a surprise,” Sondhi said.
BMO Chief Economist Doug Porter said in a note Wednesday that there’s some hope the housing slowdown might be nearing its bottom, but he suspects “the market is still digesting the incredibly aggressive rate hikes of the past year.”
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Housing market supply ticked up 3.3 per cent month-to-month, CREA said, led by gains in British Columbia. That said, inventory additions remain “historically low,” the agency said, hitting their lowest levels since the year 2000 for January.
Homebuilding not meeting ambitious goals
The chill in the country’s housing market extended to homebuilding in January, according to the Canada Mortgage and Housing Corp. (CMHC), which also released new housing starts data on Wednesday.
The pace of new construction was down 13 per cent between January and December on a seasonally adjusted basis, CMHC said.
Last month, this figure hit its lowest point since September 2020, according to the agency.
Starts in multi-family units like apartments and condos represented the bulk of the downturn.
Sondhi said that housing starts were “well below expectations” for the month.
Porter said the month’s drop might not be a “harbinger of a sustained decline,” noting the volatility of the multi-family segment and that January is a typically soft month for housing. He added, however, that it “certainly makes sense” that building appetite would slow amid falling sales and prices.
The slower building pace comes as federal and provincial governments set ambitious goals to expand available housing stock in Canada.
Ontario, for instance, has a goal of building 1.5 million homes over the next decade at a pace of 150,000 units per year; Wednesday’s data shows that last month the province was building at an annual pace for just over 71,000 homes.
A Desjardins report released Monday underlined the need to ramp up the homebuilding pace amid higher immigration targets in Canada.
Housing starts would have to immediately increase by 50 per cent and stay there through 2024, the report estimated, in order to accommodate pressure on home prices from the influx of expected newcomers to Canada over the next two years.
The Desjardins report argued, however, that the answer is not to limit immigration, as migrants’ impact on the economy is outweighed by their strain on the housing market’s limited stock.
“While the surge in newcomers is likely to push home prices higher and erode affordability again, it is important that we recognize that this is not inevitable. Rather than being considered a reason to curb immigration, it should instead be a catalyst for reducing barriers to building more housing,” the authors wrote.
The report pointed to policies to encourage higher-density development at the municipal level, investment in transit systems and efforts to fill the labour shortage in construction as high-priority solutions for policymakers to consider.
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