E-Sight February 15: In 2023, the Canadian housing market remains in decline.

According to the Canadian Real Estate Association (CREA), national home sales decreased by 3% month-over-month in January 2023, as the housing market continues to react to a high-interest rate environment. We expect to see activity continue to languish for the next few months as we have not yet seen the full impact of higher interest rates hits on the economy.

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January saw ?a substantial decline in sales and a 2.9% year-over-year decline in new listings, to just 65,045. While the number of new listings is still down relative to last year, we did see a 3.3% month-over-month increase which may signal that sellers are more willing to list their homes although new listings do remain historically low.

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After a dramatic pullback in both listings and sales over the past year, Canada’s resale housing market is now in balanced territory with the sales-to-listing ratio for Canada hitting 50.7%. The ratio decreased by 3.3 percentage points on a month-over-month basis and by 30.6 percentage points on a year-over-year basis when red-hot housing market conditions had the resale market firmly in sellers’ territory.

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With fewer buyers able to qualify for mortgages, a lack of demand continues to impact prices. The national average sale price decreased by 1.9% month-over-month in January and was down by 18.3% on a year-over-year basis, which is not surprising since we were in a seller’s market in 2022. Lower prices were evident in most Canadian provinces. Indeed, average home sale prices in Alberta, British Columbia, and Ontario decreased substantially, posting respective declines of 4.9%, 16.6%, and 20.1% on a year-over-year basis.

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Ultimately, the number of home sales decreased by 39.4% in Canada on a year-over-year basis, demonstrating a substantive slowdown in home sales due to the efforts of the Bank of Canada to tackle inflation by hiking interest rates. The number of home sales should continue to remain depressed over the first half of 2023, but the market is getting close to bottom and within a few months, we expect to see the year-over-year declines moderate.

The downturn in the housing market is also evident in new home construction. January housing starts were down by 13.3% on a month-over-month basis and 7.7% from last year.

Overall, we expect that this year will be another tough year for Canada’s housing market as demand continues to adjust to a high-interest rate environment.