Home sales fall 14.5 per cent in December across Canada

A flood of buyers and sellers looking to close deals late last year ahead of looming tighter mortgage rules resulted in a 14.5 per cent “payback” drop in home sales between December and January, market watchers said Thursday.

Economists expected the drastic decline, which marked the lowest sales level in three years, and anticipate the market will continue to be dampened in the near future as Canadians negotiate the new rules and a January interest rates hike, the third in the past year.

“It’s the biggest monthly percentage drop in sales activity since October 2008,” said Gregory Klump, the Canadian Real Estate Association’s (CREA) chief economist, referencing when the country was in the midst of the so-called Great Recession.

January activity was down in three-quarters of all local markets and virtually all major urban areas, especially in Ontario’s hot spot in the Greater Golden Horseshoe, according to data released by CREA Thursday. The decline was less significant on an annual basis, with sales falling 2.4 per cent.

Houses sales increased by about 10 per cent in Cambridge in January, compared to December, while they declined about 10 per cent in Kitchener and Waterloo.

Nationally, the monthly decline “is largely payback” for buyers rushing to sign deals in the last three months of the year, ahead of the new rules, said Robert Kavcic, senior economist at BMO Capital Markets, in a note.

The association’s figures showed sales climbed to a record monthly high in December — just before the federal banking regulator’s tougher rules for uninsured mortgages took effect. Starting Jan. 1, borrowers with a more than 20 per cent down payment must pass a stress test proving that they can service mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage point or the five-year benchmark rate published by the Bank of Canada.

The January market also dampened due to the Bank of Canada’s decision to raise interest rates to 1.25 per cent, up from one per cent. The central bank’s interest rate increase impacts variable rate mortgage holders, but those who opt for fixed mortgages also saw a rise in the five-year fixed rate amid rising bond yields and a stronger economy.

The real estate association noted that January home sales are on par with the 10-year monthly average and that a large decline in new listings of 21.6 per cent prevented the market balance from shifting in favour of homebuyers.

The average price of a home rose by 2.3 per cent when compared with last year at just over $481,500.

The national sales-to-new listings ratio was 63.6 per cent in January. A ratio reading above 60 per cent generally indicates a sellers’ market.