Housing cools

Canada’s housing market continues to cool markedly, with sales plunging 17.4 per cent in December from a year earlier. Prices, however, still held up, with a gain of 1.6 per cent from December, 2011.

On a month-over-month basis, sales were little changed from November, the Canadian Real Estate Association said today. New listings slipped 1.3 per cent from November as home sellers pulled back.

The MLS Home Price Index, which factors out changes in the types of properties sold, rose 3.3 per cent from a year earlier, marking the slowest growth since April, 2011, The Globe and Mail’s Tara Perkins reports.

For 2012 as a whole, sales of 452,372 slipped 1.1 per cent from a year earlier, and were 1.4 per cent below a 10-year average to 2011.

Sales in December fell in four of every five housing markets measured, the real estate group said, with Calgary the standout exception.

Canada’s housing market can best be plotted on two timelines: pre-Flaherty and post-Flaherty. And for many, the post-Flaherty era is a good thing.

Sales have slipped since Canada’s Finance Minister Jim Flaherty brought in new mortgage restrictions in July in an attempt to engineer the slowdown we’re now seeing, and most observers expect a soft landing, not a crash.

“National sales activity continues to hold fairly steady at lower levels since mortgage rules were changed earlier in 2012, but there are still some real differences in trends between and within local housing markets,” said CREA president Wayne Moen.

The Toronto area saw the biggest drop in New listings, the group said, but they also slumped in fully half of all markets, including, and as expected, the Vancouver area, the Fraser Valley and Vancouver Island.

Vancouver, in particular, has taken it on the chin, and observers believe it is the one market to have gone beyond a soft landing.

“The decline in new supply may reflect purchase offers below asking price that are made to sellers who are under no pressure to sell. Instead they choose to take their homes off the market once their listing expires,” said CREA’s chief economist, Gregory Klump. “In the absence of economic stresses like a spike in interest rates or a sharp drop in employment, this dynamic can be expected to keep the housing market in balance.“

Home sales are expected to continue at a lower level, as is construction of new homes.

The average price in Canada still climbed to $352,800 in December. If you take out Vancouver and Toronto, CREA said, the national average would be 3.3 per cent.

“Canada’s housing market is clearly in correction mode as we had been warning would occur well before the figures began to roll over,” Derek Holt and Dov Zigler of Bank of Nova Scotia said before the CREA report.

As for inventory, the supply of unsold homes would take almost 7 months to deplete, but that hasn’t changed much since late 2010, said senior economist Sonya Gulati of Toronto-Dominion Bank.

Ms. Gulati expects the market will stabilize now over the next few months, and that the impact of Mr. Flaherty’s changes are now priced in.

“When looking at previous mortgage rule tightening episodes, the housing market impacts have been temporary in nature,” she said. “There is no reason to think that this time will be any different.”

Both the sales-to-listings ratio and the timeline for unsold inventory are within a normal range, she added, though at some point prices will slip.

“When we compare prices to other standard metrics like price-to-income, we still believe that prices have deviated from underlying economic fundamentals. With this in mind, house prices will likely resume their trek downwards once higher interest rates come into effect in the fourth quarter of 2013.”