Sharp drop in home sales portends stagnant year ahead

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Home sales fell sharply in Canada last year as government rule changes sparked the largest annual decline since 2008, spurring predictions that Canada could face stagnant sales in 2019.

Year-end statistics published Tuesday by the Canadian Real Estate Association (CREA) show 458,442 homes sold across the country in 2018, down 11.1 per cent from 515,681 sales in 2017.

It was the worst year for national sales since 2012 and the largest annual drop in activity since 2008, when sales fell 17 per cent as the economy slid into recession.

The decline was due in large part to slowing activity in British Columbia and in the Greater Toronto Area, both hit hard by new government measures, including higher interest rates and tougher mortgage qualification rules that took effect Jan. 1, 2018.

Sales in the Vancouver region fell 31.6 per cent last year, while sales in the Fraser Valley slid 30.8 per cent and Victoria saw sales fall 20 per cent. Sales in the Greater Toronto Area were down 16.4 per cent in 2018, CREA said. Market activity also slowed sharply in other major markets in Southern Ontario, and across the Prairies as oil prices dipped and economies slowed.

CREA has forecast little improvement in 2019, predicting 0.5-per-cent growth in national sales this year over 2018.

Christopher Alexander, regional director for Re/Max in Ontario and Atlantic Canada, said the mortgage stress test has been the biggest factor keeping buyers out of the market, especially in Vancouver and Toronto.

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“It’s a lot harder to get a mortgage now than it has been for the last 10 years,” he said Tuesday. “Not only do you have the stress test, but the Big Five banks are very particular in their criteria. It just seems that everybody is being very cautious.”

Over all, Re/Max predicts prices could fall 3 per cent in Vancouver this year, and expects prices to rise about 2 per cent in the GTA.

However, Mr. Alexander sees a lot of variation with the GTA and the Vancouver region, with some areas doing better than others in 2019. “I think it’s going to be similar to the last six months of 2018 – there will be good pockets and weaker pockets,” he said.

As activity slowed in many markets last year, CREA said average prices also slid, declining 3.6 per cent nationally on a seasonally adjusted basis. It was the first annual drop in average home sale prices since 2008 and the largest price drop since 1995, which CREA said is due to declining sales in the most expensive categories of homes. The benchmark sales price, which is an adjusted measure that corrects for the types of homes sold in the period, rose 2.7 per cent in 2018 over 2017.

But there were sharp variations across the country. The average price of all homes sold in the Greater Toronto Area fell 3.4 per cent in 2018, for example, while the average price climbed 3.7 per cent in Ottawa and 5.8 per cent in Montreal.

Real estate agent John Pasalis, who is president of Realosophy Realty Inc. in Toronto, believes sales in the GTA will likely be flat this year. His agents have seen home viewings pick up quite a lot since the start of January, and there seem to be lots of buyers looking in the market, but he said there is not a lot of inventory available.

“Not that our brokerage represents the whole market, but I would be a bit more worried if there were few buyers and if showings on listings did not improve,” he said.

Bank of Montreal economist Robert Kavcic predicts little change in national sales totals or prices in 2019, saying demand from Canada’s growing population will be offset by higher interest rates and continuing high prices in key markets.

“It’s probably not a stretch to think that the Canadian housing market has entered into a prolonged period of relative stagnation, where sales are roughly flat and prices no longer outrun inflation,” he said.

On a provincial basis, Quebec was the only market that saw sales increase significantly in 2018 as the province continued to post strong economic growth. Sales climbed 5.3 per cent in Montreal last year, 7.1 per cent in Gatineau and 4.3 per cent in Quebec City, CREA said. The Saguenay region led the country’s major markets in 2018, with sales climbing 10.9 per cent.

Mr. Kavcic is bullish on Ottawa and Montreal in 2019, saying they are both more affordable cities than some other major markets in Canada and are best positioned “to keep churning out” home price gains in 2019.

CREA predicts total sales volume will fall by 5.2 per cent in B.C. this year and dip by 2.3 per cent in Alberta. Ontario is expected to see modest sales growth of 1.4 per cent, while Quebec and New Brunswick are expected to lead the country with sales climbing 2.2 per cent and 3.2 per cent respectively in 2019.

On a price basis, CREA forecasts 1.7-per-cent average increases nationally, led by an average 3.3-per-cent price increase in Ontario. Home prices in B.C. are expect to climb 0.9 per cent, while CREA expects prices to fall by 2.5 per cent in Alberta and 3.5 per cent in Saskatchewan.

Mr. Kavcic said Calgary, Edmonton and Regina are “undergoing more of a slow and agonizing melt at the moment” and there is little reason to believe conditions will dramatically change this year.