Housing activity has been lagging across Canada ever since January, causing many industry watchers to wonder when will things start to heat up again.
The answer largely depends on when the market will adjust to the effects of a new mortgage stress test, which came into effect on January 1 and sent sales plummeting. Some economists are predicting that May could be the month that the market gets back on its feet, while others are saying it’s still too soon to tell.
The market won’t be boosting the economy anytime soon.
When home sales plummeted 14.5 per cent in January, the Canadian economy dropped with it. But according to BMO chief economist Douglas Porter, the housing market won’t hurt Canada’s economy in 2018 — it just won’t help it.
“[As Canadian trade continues to struggle, the prior Canadian growth workhorse — housing — is showing further signs of fatigue,” writes Porter, in a recent note.
He writes that, despite their different dynamics, sales in Calgary, Vancouver and Toronto all reported a 20 per cent year-over-year drop in sales in April. “With the slide in sales, we look for residential activity…to make no contribution at all [to the economy] in 2018,” he concludes.
The spring ramp-up may have to wait.
Traditionally, home sales tend to peak in April (just look at last year’s record activity for an example). But this year, sales continued to fall year-over-year in almost every major Canadian housing market. According to RBC economist Robert Hogue, it could be a sign that the annual sales ramp-up has been pushed back.
Hogue says sellers might be delaying listing their properties amidst uncertainty about the state of the market. GTA home listings were down 24.6 per cent year-over-year in April.
“Typically, you see home resale activity pick up in March and peak during the April-May period,” Hogue told BuzzBuzzNews. “We would normally expect to see some kind of rebound in sales, but we don’t know yet how much the stress test is pushing back activity, or to what extent this is a permanent effect.”
But some markets are already heating up.
Despite falling activity in most markets last quarter, five Ontario markets saw a surge in demand which moved prices upwards.
According to Desjardins’ housing affordability index, affordability deteriorated in Ottawa (-0.7 per cent), Kingston (-6.4 per cent), Kitchener-Cambridge-Waterloo (-7.9 per cent), Windsor (-2.7 per cent), and Thunder Bay (-5.9 per cent) last quarter.
Many are markets that industry watchers had predicted would outperform this spring, as homebuyers sought out more affordable alternatives to expensive markets like Toronto.
“Canadian housing markets are likely to remain under-pressure from the recent [new mortgage rules], higher mortgage rates, and in some cases provincial regulation,” writes TD senior economist Michael Dolega, in a recent note. “However, lower-priced markets where affordability is good should generally outperform in the current environment.”