Photo: James Bombales

As many industry watchers had predicted, January was a slow month for the Canadian housing market, with national sales dropping 14.5 per cent month-over-month. It’s too early to say for certain what the next few months will bring, but according to one bank, an uptick in activity won’t be arriving anytime soon.

“Looking ahead, we expect near-term volatility to persist as buyers react to the fallout from both the new [mortgage rules] and rising mortgage rates,” writes TD senior economist Fotios Raptis, in a recent note.

According to Raptis, last month’s drop in sales was caused by a higher interest rate environment, and a new mortgage stress for uninsured buyers that came into effect on January 1. He writes that the impact of these changes is likely to continue for the foreseeable future, as the market continues to adjust.

But, it’s also worth noting that the drastic drop in January sales was thanks, in part, to buyers rushing into the market in December, to avoid the new mortgage rules.

“Although it’s still too early to accurately assess what impact the new [mortgage] guideline has had on housing markets, the weak January data adds credence to the view that 2017 year-end sales strength was likely due to some pulling forward, as buyers rushed to mortgage up before the new year,” writes Raptis.

Raptis’ forecast for the second-half of 2018 is a bit rosier. He predicts that rising interest rates will continue to keep things relatively cool, but that most markets should become relatively balanced.

“After stabilizing mid-year, home sales and prices are likely to remain weighed down by rising interest rates,” he writes. “But, with markets largely in balanced territory, prices should remain well supported.”

As for when the Bank of Canada will choose to hike the overnight rate — which will in turn cause lenders to raise mortgage rates — next, Raptis says there’s still plenty of time.

“Overall, the [January sales data] does little to affect our view of the Bank of Canada,” writes Raptis. “The impacts of both the new [mortgage stress test] and higher mortgage rates have largely been included in its economic forecasts…With households more sensitive than ever to rising interest rates, the Bank will likely wait to see inflationary pressures build further before concluding that it’s safe to raise rates again likely this July.”

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