Canadian existing home sales edged up 1.3% in December, but they were still down almost 40% from the heated levels of a year ago. For all of 2022, sales fell by a record 25%. The steep drop in activity continues to pressure prices lower, although there were a few glimmers of less-bad news in the data. For example, new listings fell heavily last month (down 6.4% m/m, and -14.3% y/y), which strengthened the key sales/new listings ratio to 54.4—not far from typical levels. Similarly, the months of inventory only nudged up to 4.2, basically back to pre-pandemic levels.
Even with the slightly better balance in the market balance, the reality is that home prices are still adjusting to an entirely different interest rate landscape than many market participants have ever dealt with before. And while the Bank of Canada has signaled a slower pace of rate hikes—and even a pause—we're not quite at the peak just yet. We look for one more 25 bp hike next week, and then a move to the sidelines for the remainder of 2023 to reassess.
The key MLS Home Price Index fell another 1.6% m/m in December, clipping prices 7.5% from year-ago levels. This measure, which adjusts for changes in the sales mix, has been dropping at a very steady clip in the past nine months (roughly 1.5% on a seasonally adjusted basis), and is now down 13.1% from the February peak. There have been monumental differences among regions, with prices in some cities little changed over that period, while swathes of Southwestern Ontario have already dropped by more than 20% from the highs. To pick but some examples, the largest price declines from last year's peak have been in Cambridge, London, Brantford, Kitchener-Waterloo, and Hamilton, all of which are down at least 21%.
The headline transaction price, which does not adjust for sales mix, only edged down 0.3% m/m, but is down 12% y/y; that's the steepest yearly drop in this measure for any month in more than 40 years of records. This measure of prices was down 19% from the February high. Even so, average transactions prices were up slightly on average for all of 2022, thanks to the sky-high level in the opening months of the year.
Bottom Line: Housing activity tends to be at its quietest in December and January in any event, so it's unwise to read too much into trends around the turn of the year. But this past December was particularly slow, for both sales and—importantly—new listings. The latter has helped slightly firm what had been a soggy market balance, and reinforces the point that there is little forced selling underway, helping provide some support for prices. As we look ahead to the crucial spring selling season, the all-important question is who will emerge from hibernation in greater force—buyers or sellers? We suspect that the market will still be digesting the rapid run-up in interest rates, and that buyers will be more reluctant to re-emerge, keeping prices under pressure for some time yet. We look for double-digit annual declines for all of 2023 in sales and prices, on an average annual basis.
Table 1 - Canada — Existing Home Sales
(% change)
Source: BMO Economics, Haver Analytics, CREA