Photo: James Bombales

The new year brought with it a cooler housing market, as sales dropped in the first month of 2018. But things aren’t as bad as they might first appear, according to one economist.

“The fear heading into January was that the housing market would slow sharply with the introduction of stricter mortgage rules,” writes BMO economist Benjamin Reitzes. “While activity did indeed slow, the market didn’t appear to be too badly hit.”

Existing national home sales fell 0.5 per cent year-over-year in January, a drop from December’s 4.1 per cent year-over-year increase. Reitzes says the difference can be attributed to buyers who tried to get into the market before the new mortgage rules came into effect on January 1.

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“The chunky decline isn’t a surprise, as buyers moved forward purchases into 2017 to get in ahead of the new rules,” he writes.

While the GTA saw a 22 per cent year-over-year sales drop, Reitzes is quick to point out that the most local markets remained relatively stable last month.

“Toronto home sales plunged 22 per cent year-over-year, as Canada’s largest market continues to adjust to Ontario’s Fair Housing Plan, rising interest rates and the new mortgage rule changes,” he writes. “But…sales in much of the rest of the country are still above year-ago levels. Sales were up double-digits in the Fraser Valley, Vancouver, Edmonton and Montreal, among others.”

He does predict that prices will likely drop in the coming months, as Toronto’s previously red hot market continues to adjust to the new mortgage rules.

“The weakness in Toronto (especially in the high end of the market) likely knocked average price gains down to 4.5 per cent year-over-year,” writes Reitzes. “The quality adjusted MLS [house price index] is expected to [fall] to 8 per cent year-over-year, which would be the slowest increase in two years.”

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