Canada's banks report on housing market-compressed Photo: James Bombales

Canadian existing home sales experienced a monthly drop of 3.1 per cent in January over December, according to a report published yesterday by the Canadian Real Estate Association (CREA).

Demand dropped in 60 per cent of Canada’s major markets, but it was oil producing provinces that took the biggest hit. The Alberta and Saskatchewan markets witnessed 17.8 per cent and 19.3 per cent month-over-month declines in home sales, respectively.

While prices still rose over the previous year Canada-wide, they did so at the slowest pace since May 2013. Inventory levels were also up, with the national sales-to-new listings ratio falling to 49.7 per cent, marking the first time the ratio has dipped below 50 per cent since December 2012.

As TD economist Diana Petramala pointed out in a note published by the bank yesterday, there is now three month’s worth of data to examine when assessing the impact of the 50 per cent drop in oil prices on the country’s housing market.

We delved into some of the reactions of Canada’s major banks to the new CREA report to get a sense of where the biggest financial institutions stand on the present and future of the market.

TD Bank

  • Economist Diana Petramala wrote that the soft start to 2015 is consistent with the bank’s view that housing activity will moderate over 2015 and 2016.
  • Home prices have held up so far in markets heavily dependent on oil production, but they will likely follow sales downward through the rest of the year.
  • TD projects home prices in these markets will suffer a 10 per cent peak-to-trough decline.
  • The strong US economy, weak Loonie and unexpected Bank of Canada rate cut will help keep the housing picture favourable in other major markets.
  • Even with a more favourable outlook, a lack of pent-up demand and deteriorating affordability will “limit the positive impact of lower interest rates over 2015 and 2016,” wrote Petramala.

Royal Bank of Canada

  • RBC senior economist Robert Hogue wrote that the collapse in oil prices has shaken up confidence in oil-producing provinces, however, the weakness in these markets is not threatening to affect other Canadian markets at this stage.
  • Lower gas prices, the Bank of Canada rate cut and improved economic prospects for net-oil consuming provinces will “provide some upside to most of Canada’s housing markets this year.”
  • In 2015, house prices are expected to rise in British Columbia (+ 5.6 per cent) and Ontario (+5.2 per cent) and decline in Alberta (-0.5 per cent) and Saskatchewan (-3.2 per cent). RBC expects all other provinces to see subdued price gains in 2015.

Bank of Montreal

  • Senior economist Sal Guatieri wrote that even as the steep drop in oil prices caused the Prairies to lose “their sizzle”, markets are still “mostly balanced” with buyers gaining the upper hand in more regions. No regions are currently sellers’ markets, but Vancouver and Toronto are close.
  • With Toronto’s condo boom ebbing, housing starts are in line with demographic needs and there is no evidence of overbuilding.
  • “Outside Vancouver and Toronto, valuations appear reasonable, reducing the chance of a severe nationwide correction,” wrote Guatieri.
  • Demand from highly skilled immigrants will support the Toronto market along with the Millennial generation, which will remain a factor for a few more years.
  • Economic growth and oil prices are expected to pick up in 2016 allowing sales to stabilize in Alberta, though depressed sales in the province will have a moderate impact on national demand in 2015.

CIBC

  • While CIBC has not published a reaction to the latest CREA report, its Provincial Outlook 2015, authored by economists Avery Shenfeld and Nick Exarhos, predicted a mild recession for Alberta. Read the full story on the Provincial Outlook here.

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