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Canadian existing homes sales were down by 3.3 per cent in January, the fifth straight monthly decline, according to data released last week by the Canadian Real Estate Association (CREA).
Gregory Klump, CREA’s chief economist, identified the Polar Vortex as the culprit behind the sales slump and said that the organization would be closely monitoring February for signs of a rebound.
House prices, on the other hand, were not impacted by the extremely inhospitable weather. The average sales price logged a hefty 9.5 per cent year-over-year increase in January and the MLS Home Price Index rose 4.8 per cent over January 2013.
Economists from Canada’s major banks agreed that the winter weather negatively affected sales activity in January, but they weren’t convinced that the frigid temperatures were entirely to blame.
TD senior economist Francis Fong said he wouldn’t be surprised if sales activity bounced back in the spring market.
“However, it is worth noting that mortgage growth has slowed significantly over the last year as an increasing share of buyers are priced out of the in-demand, but expensive single-family market,” he said.
The shift towards the single-family market and away from the less expensive condo market is largely responsible for the diverging sales and price trends.
Fong ended his note by reaffirming TD’s forecast of a soft landing for the Canadian housing market.
In his analysis of the CREA numbers, BMO chief economist Douglas Porter said that an eventual “cool-down” in price gains was likely considering the sustained slowdown in sales.
“The old rule of thumb is that prices follow sales with about a six-month delay,” he said, concluding that “pricing power will eventually follow the sales lead.”
RBC senior economist Robert Hogue said that once the weather improves, the market “will maintain an average ‘cruising speed’ that will be neither too hot nor too cold, and such that total 2014 resales in Canada will be only modestly strong than in 2013.”
Hogue said that resales will rise by only 0.6 per cent in 2014 over 2013, with rising longer-term interest rates and strained affordability putting downward pressure on sales activity.
Softening demand and excess supply of newly completed condos are expected to “rein in price increases in 2014.”