Canadian Existing Home Sales (December 2017)

Michael Dolega, Director & Senior Economist | 416-982-6420

Rishi Sondhi, Economist | 416-983-8806

Date Published: January 15, 2018

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Existing home sales increase once again in December, but decline in 2017 as a whole

  • Canadian existing home sales rose 4.5% m/m in December, marking the fifth consecutive monthly gain. The latest increase puts sales right back to where they were prior to their summer slump. Despite the gains, the year as a whole saw sales decline 4.0% - marking the first decline in five years and the worst performance for sales since 2010.
  • Sales increased in all provinces except for Nova Scotia in December. In B.C. (5%), there were solid gains in Fraser Valley (+7%) and Vancouver Island (+14%). Ontario's 3% monthly gain was driven by an 8% surge in sales in the GTA. Sales were also sharply higher in the Prairies, with activity increasing in the key markets of Calgary (+9%), Edmonton (+17%), Saskatoon (9%) and Winnipeg (10%), while Regina (-5%) provided a notable exception. Sales inched higher in Quebec, taking the year-over-year gain to a robust 8.4%. In the Atlantic Provinces, sales in New Brunswick posted the strongest monthly gain in December (+3%).
  • New listings rose in December to their highest level on record, but the 3.3% increase lagged behind the solid sales gain leading the national sales-to-new listings ratio higher in the month. At 58%, the ratio inched closer to sellers' territory. Despite a slight pull-back, B.C. continued to exhibit the highest sales-to-new listings ratio of all the provinces, with the 63% figure indicating a relatively tight resale market which should be supportive of price growth going forward. Conversely, the ratio is the lowest in Newfoundland and Labrador, indicating loose market conditions. Resale markets tightened in all other provinces except Manitoba, Nova Scotia and P.E.I. – with the latter particularly hard hit, down more than 10 percentage points.
  • The average home price rose for the fifth consecutive month, advancing by 0.8% in December. Despite the uptick, the average transaction price remains some 3% below its April 2017 peak. Prices were sharply higher in Ontario (3.6%) and Nova Scotia (7.1%) while also increasing in Quebec (0.4%) and New Brunswick (0.6%). On the whole, prices rose 4.1% in 2017 - their slowest pace in five years.
  • However, much of the decline in average prices appears to be related to a shift in activity away from higher priced regions, with the share of GTA sales in the national falling from 21% to 18% - the lowest in a decade. In fact, the MLS home price index surged by 14.1% in 2017 – its fastest pace on record which goes back to 2006. On a monthly basis, the quality adjusted HPI decelerated from 9.3% to 9.1% in December – the eighth consecutive deceleration. This slowing in price growth largely reflects the single-family market (+4.9% year-over-year). Meanwhile, apartment prices were up some 20% year-over-year and row/townhouse prices also recorded a double-digit gain (+13%).  

Key Implications

  • This morning's report provides an encouraging last look at sales activity before the implementation of the updated B20 guidelines in January. Having said that, there are some caveats in the report. Firstly, some of the increase may have represented the pulling forward of activity so as to avoid the updated OSFI mortgage regulations. Moreover, the seasonal adjustment factor appears to have boosted the headline figure. As such, next month's report will be all the more closely scrutinized for the health of the resale market, amidst the newly implemented B20 regulations.
  • In Ontario, the monthly sales gain was driven by the GTA as the market continues to recover from the policy-induced turbulence earlier in the year. Going forward, the improvement in Ontario's market could take a breather, with the initiation of the B20 guidelines likely to weigh on activity in the GTA. There are indications that uninsured mortgages comprise a relatively large share of the GTA market, making the new guidelines all the more impactful. 
  • Activity has been strengthening in B.C., and this trend continued into December. However, listings have been rising at an even faster rate, with the sales-to-new-listings ratio declining for a second month straight to the lowest level since the implementation of the foreign sales tax in the province. While the market still remains in sellers' territory, which should support price growth somewhat, the already strained affordability conditions will begin to bite even more this year as mortgage rates rise amidst the updated B20 regulation.
  • Strong economic conditions have underpinned solid housing demand in Quebec, with tighter resale markets and accelerating prices the result. Gains have been concentrated in Montreal's market, owing to labour market outperformance. Looking ahead to 2018, solid job growth should support higher sales and rising prices in Quebec, given the healthy affordability metrics.
  • Positive population growth has sparked improved activity in the Atlantic provinces, with sales higher in all Maritime provinces in December. For 2017 overall, relatively firm gains were observed in Nova Scotia, New Brunswick and PEI. On the flip side, falling employment has kept a lid on sales in Newfoundland and Labrador, and we look for more of the same this year. 
  • Sales improved in the energy-rich provinces of Alberta and Saskatchewan. Markets are generally balanced in the former, though appear somewhat oversupplied in the latter. As such, we anticipate modest price gains in Alberta in 2018, while prices will likely drop for the fourth straight year in Saskatchewan.
  • The Bank of Canada is expected to hike their policy rate on Wednesday, January 17th, marking the 3rd increase since July of last year. Higher rates in tandem with tighter mortgage lending rules, owing to the initiation of the B20 guidelines, should ensure that the soft landing gripping Canada's housing market has further room to run.