Canadian existing home sales bounced 8.7% in seasonally adjusted terms in December from the frigid conditions in the prior month. In what is normally the slowest month of the year for home sales in unadjusted terms, activity was no doubt given a bump by unseasonably mild weather and the sudden pullback in long-term borrowing costs. That friendly combination helped lift sales 9% above soft year-ago levels. However, before getting too stoked on housing prospects, note that adjusted sales are still about 11% below the average of the past decade, and sales for all of 2023 were also down 11% from the prior year's tally.
Still, the minor sales revival did help firm the market, as new listings dipped 5.1% to the lowest level since last June. As a result, the sales-to-new-listings ratio perked back up to a relatively healthy 57.8 last month (from a weak 50.5), which is a bit above its long-run norm. In a similar vein, the inventory of unsold homes dipped to 3.8 months (from 4.2, which had been the highest since spring 2020). For perspective, the inventory stood at 4.2 months in December 2019, in what was a fairly normal market just prior to the pandemic, while the sales/listings ratio was 66.0% at that point.
The mild re-tightening in the market last month was not enough to stabilize prices, at least not yet. For example, the MLS HPI index, which adjusts for quality and compositional changes in the sales mix, fell another 0.8% m/m, for the fourth consecutive drop. Not unlike the sales figures, prices are a glass half-full/half-empty story—they are up 2.6% from last February's recent low (and up 0.7% y/y), but are now down 13% from the peak reached in Feb/22.
As usual, there were many regional cross currents last month. Among the larger cities, Toronto and Ottawa saw the biggest monthly bounce, followed by Winnipeg (see table), but all saw at least some modest gains. Yet, notably, for all of 2023, there was actually very little regional variation in activity, with most cities posting sales declines of close to the national norm (of -11%)—even Calgary sales fell 10% last year. Average transactions prices (which don't adjust for sales mix) rose in all major cities on a year-on-year basis, led by double-digit gains in Halifax and Regina, but were down 3.6% for all of last year (a few cities bucked the trend, led by a 3.7% rise in Calgary).
Looking ahead to 2024, it's notable that even CREA seemed a bit cautious on the outlook, even with this weather-aided rebound in December sales. One big plus for the market is the recent plunge in bond yields, which has carved the all-important five-year GoC by more than 110 basis points from the peak just three short months ago. This rapid descent has translated into falling long-term mortgage rates, no doubt reviving sentiment. In addition, fiery population growth, still-decent employment gains, and rapidly rising rents are keeping important support squarely under demand. 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), 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.