Photo: James Bombales

As Canadian home sales took a serious plunge in the first quarter of 2018, many industry watchers predicted that activity would start to pick up again in the spring. But according to one economist, that doesn’t look like it’s going to happen.

“It’s official: homebuyers took a pass at the spring season,” writes RBC senior economist Robert Hogue, in a recent note. “We held the view until now that the transitory effect of the stress test implemented on January 1 would start to wane by the spring. Well, there was no indication of any material rebound in home resale activity through May.”

Resales in Canada fell to a six-year low last month, with just 436,500 units sold on a seasonally-adjusted basis, representing the fifth monthly sales decline in a row. Hogue blames new mortgage rules, higher interest rates and an expansion of Vancouver’s foreign buyer tax for the market’s poor performance.

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“Clearly, [these factors] continue to keep homebuyers on the sidelines,” he writes. “Not even a material rise in new listings (up 5.1 per cent) enticed them back into play.”

Still, he notes that policy-makers should be pleased that the market is still in balanced territory, after last year’s bubble-like conditions in major markets like Toronto.

“While most markets have yet to settle in and affordability is still a gut-wrenching issue in key areas, the recent trends dialed down earlier worries about the Toronto and Vancouver area markets,” writes Hogue. “Meanwhile, up-trending markets such as Ottawa and Montreal keep chugging along and pose little concern at this point.”

As for the market’s “landing,” he admits that things may be a little rougher this year than his earlier predictions.

“The absence of a rebound in activity this spring means that home resales in Canada are tracking lower than we assumed in our April forecast,” writes Hogue.

While RBC had predicted that home sales would fall 4.3 per cent in 2018, Hogue predicts that the number might actually be twice as high by the end of the year.

“Nonetheless, the balance between demand and supply remains largely as we anticipated—balanced—and price gains are decelerating roughly in line with our forecast,” he adds. “So at this stage, our the projected 1.8 per cent annual price increase for 2018 nationwide still looks achievable.”

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