Home prices, sales have plunged in the last year. Is this the bottom?

Click to play video: 'Will the pause on the interest rate drive up Canadian housing prices?'
Will the pause on the interest rate drive up Canadian housing prices?
WATCH: Some housing markets in the country were already showing signs of life following a pronounced downturn in 2022 – Mar 9, 2023

Canada’s housing market showed signs of life in February following a year of cooling off, but experts are watching the typically busy spring season to determine whether the correction has hit its bottom.

The Canadian Real Estate Association (CREA) said Wednesday that while monthly home sales were down 40 per cent from the same month a year earlier in February, sales actually rose 2.3 per cent from January. That was thanks largely to an uptick in activity in the Greater Toronto and Vancouver areas, CREA said.

The average national sale price was $662,437 last month, down 18.9 per cent from the all-time high in February 2022 — the month that most consider the peak of the frenzied pandemic housing market in Canada.

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Without the Greater Toronto and Vancouver markets, however, the average home price would be roughly $135,000 less, the agency said.

Prices in some Ontario and B.C. markets have dipped below the national average, CREA said, while cities including Calgary, Regina, Saskatoon and St. John’s “stand out as markets where home prices are barely off their peaks.”

There are also signs the national rout on home prices is slowing.

CREA uses its Home Price Index (HPI) to show the aggregate composite price for homes in sales, a benchmark measure that tends to downplay the influence of Canada’s most expensive or volatile markets on the national average.

Click to play video: 'Canadian home sales begin 2023 with a 14-year low'
Canadian home sales begin 2023 with a 14-year low

The HPI shows aggregate home prices dropped 15.8 per cent from a year ago and were down 1.1 per cent month to month, marking about half the decrease from the previous period and the smallest such drop since last March.

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The 2023 sales figures for February showed that activity was close to the same levels as in 2018 and 2019, CREA said.

“February’s data contained the potential of a more robust market to come, but to repeat the bottom line from last month, we won’t know what the 2023 market has in store until the spring,” CREA chair Jill Oudil said in a statement accompanying the data release.

The number of newly listed homes was down 7.9 per cent in February compared with a month earlier, CREA said. That meant there was less inventory coming to the market last month even as buying activity ticked up.

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CREA said the sales-to-new listings-ratio rose to 58.4 per cent, the tightest the market has been since last April.

Experts who spoke to Global News recently saw there’s been an uptick in activity at the buyer level since late January, when the Bank of Canada announced a conditional pause on interest rate hikes.

But sellers have yet to return to the market in droves, affecting the supply that returning buyers can bid on and driving competition in some markets such as Toronto.

Click to play video: 'Canadian economics professor on housing market projection for 2023'
Canadian economics professor on housing market projection for 2023

The market dynamics playing out so far in 2023 are similar to those of 2019, noted Shaun Cathcart, CREA’s senior economist. If those trends continue in the months ahead, they could see sellers come off the sidelines and spur an uptick in activity this spring.

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“Future sellers, many of whom will also be buyers, are likely biding their time until the optimum time to list and buy something else. For most, that’s in the spring,” he said in a statement.

“Will buyers jump off the fence to snap homes up in 2023 once they finally start to hit the market? They did in 2019.”

Silicon Valley Bank collapse could impact housing market

Another factor pointing to a possible bottom for the housing correction is recent instability in the U.S. banking system tied to the collapse of Silicon Valley Bank, notes BMO chief economist Doug Porter.

He wrote in a note to clients on Wednesday that the increased attention on bonds amid the instability was driving down borrowing costs in Canada as long-term yields declined.

“While the broader turmoil is a clear negative for the overall economic outlook, the Canadian housing market dances to the tune of interest rates first and foremost,” he wrote.

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“The pullback in long-term yields, along with the BoC’s rate pause, may at least put a floor under housing.”

The SVB uncertainty has led some in the market to revise their forecasts for the Bank of Canada’s rate path, with expectations rising for rate cuts in the months to come.

Economists who spoke to Global News this week said it’s premature to say whether the central bank will move from its rate pause as a result of the instability.

Stronger than anticipated activity elsewhere in the housing market in February might push the Bank of Canada to keep its benchmark rate higher for longer, wrote Randall Bartlett, senior director of Canadian economics, in a report Wednesday.

The Canada Mortgage and Housing Corp. (CMHC) said Wednesday that the annual pace of housing starts rose 13 per cent in February, higher than market watchers had expected.

Bartlett said it’s too soon to say if this volatile figure marks a turning point in the pace of construction, but an eventual turnaround here could see the housing market pick up steam again.

Should lower bond yields hold out, Dejardins sees the housing market bottom landing sometime in the middle of 2023, with higher prices and new home starts to follow.

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If that comes to pass and the activity keeps Canada’s economy hotter than the central bank would like to sufficiently cool inflation, don’t expect rate cuts anytime soon, Bartlett argued.

“For the Bank of Canada, this may mean keeping rates high for longer if the ‘accumulation of evidence’ suggests the economy is outperforming the Bank’s expectations,” he wrote.

“Only time will tell if the recent financial market volatility has lasting implications for monetary policy in Canada.”

Click to play video: 'Silicon Valley Bank collapse: Ripple effects to be felt by Canadian households'
Silicon Valley Bank collapse: Ripple effects to be felt by Canadian households

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