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Home sales edge up slightly in December

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Home sales in Canada edged up slightly between November and December, a trend not often seen at the tail end of a calendar year. 

CREA is releasing national statistics for December 2022, and while there are no surprises, there are reasons to pay attention to the data. 

 

Chart A

Monthly home sales (Canadian Real Estate Association)

 

There’s a subtle trend when looking at Chart A from the national association. The Canadian real estate market responds to uncertainty by slowing down. 

You can see notable drops in volume in 2009 and 2020 during periods of economic uncertainty, similar to the drop we’re seeing today. In both cases, volume returned swiftly after a slowdown and traded well above the 10-year average for a while thereafter. 

This type of rebound typically rewards the more resilient professionals who can ride out the bottom of the market without knowing how long that may be. CREA anticipates a rebound in volume will take place in 2024.

 

Sales volume

 

Sales volume was down nearly 40 per cent compared to December 2021. While this appears alarming at face value, it becomes less concerning when considering that December 2021 was a record year.

Monthly volume increased 1.3 per cent compared to November, remaining relatively consistent after a steep drop in 2022. The uptick is notable because volume almost always drops off into December & January. 

This break from the typical annual trend indicates a bit of strength and opportunism returning to the market after a months-long lull, and likely a result of buyers who were pushed out of the market by high prices slowly beginning to re-enter.

Anecdotes from the market support this opportunistic thesis, as many professionals mention having buyers who are waiting on the sidelines for the right time to purchase. 

The market has been stripped of urgency and has returned to a slower, steadier, and healthier market that is focused on one factor: affordability.

 

Chart B

 

When considering affordability, it’s important to note that most economists measure it as a function of a few variables:

· House prices

· Interest rates

· Income

National Bank noted in their Q3 Housing Affordability Monitor that housing affordability had reached levels not seen since 1981 and 1989. 

Both previous peaks were followed by steep recoils in affordability as prices corrected and rates eventually normalized.

Income is expected to be largely unchanged as the Bank of Canada made job vacancies one of their primary targets in reducing inflation. This means that prices or interest rates must come down for the market to be sustainably affordable. 

House prices are showing the largest year-over-year decline since 2009, with national home prices down 12 per cent year-over-year in December.

Finally, reviewing regional benchmark prices, a clear re-urbanization of demand is apparent. With the reopening of the workplace and travel, core markets seem to be more resilient than their surrounding suburbs. 

Many of the municipalities that saw steep accelerations in price during the pandemic era are seeing comparably steep declines thereafter.

Read CREA’s housing market report for December here.

 

 


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