Canadian home sales rise in February despite drop in new supply

Home sales recorded over Canadian MLS Systems posted a 2.3 per cent increase from January to February 2023. Gains were led by the Greater Toronto Area (GTA) and Greater Vancouver, reported the Canadian Real Estate Association (CREA) on Wednesday.

But the organization said the actual (not seasonally adjusted) number of transactions in February 2023 came in 40 per cent below an incredibly strong month of February in 2022. The February 2023 sales figure was comparable to what was seen for that month in 2018 and 2019.

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“February’s data contained the potential of a more robust market to come, but to repeat the bottom line from last month, we won’t know what the 2023 market has in store until the spring,” said Jill Oudil, Chair of CREA. “While we’re not seeing it in the sales or listings data just yet, I would expect homeowners are getting properties ready for the market and prospective buyers are getting mortgage pre-approvals.”

“The similarities between 2023 and the recovery year of 2019 continued to emerge in February, with sales up, the market tightening, and month-over-month price declines getting smaller,” said Shaun Cathcart, CREA’s Senior Economist. “But the biggest similarity was a sharp drop in seasonally adjusted new listings. Future sellers, many of whom will also be buyers, are likely biding their time until the optimum time to list and buy something else. For most, that’s in the spring. Will buyers jump off the fence to snap homes up in 2023 once they finally start to hit the market? They did in 2019.”

CREA said the number of newly listed homes dropped 7.9 per cent on a month-over-month basis in February, led by double-digit declines in several large markets, particularly in Ontario. With new listings falling considerably and sales moving higher in February, the sales-to-new listings ratio jumped to 58.4 per cent, the tightest since last April. The long-term average for this measure is 55.1 per cent, it said.

“There were 4.1 months of inventory on a national basis at the end of February 2023, down from 4.2 months at the end of January. It was the first time the measure has shown any sign of tightening since the fall of 2021. It’s also a full month below its long-term average,” added CREA.

Douglas Porter, Chief Economist, BMO Economics, said the plunge in new listings, reinforced the total absence of forced selling, but also highlighted the stall in overall activity.

“Aside from the depths of the pandemic three years ago, new listings are now at their lowest ebb since 2004. This has tightened the market, with the sales-to-new listings ratio suddenly popping up to 58.4 per cent (from 52.6 per cent), or about three points above its long-run average. In a similar vein, months of inventories dipped to 4.1 (from 4.2), well below the long-run norm of around five. The bottom line is that even amid very sluggish sales, market dynamics actually improved last month,” he said.

“Of course another large potentially positive factor for the housing market has just waded onto the scene—the financial sector turmoil globally has chopped long-term borrowing costs down to size in double time. For example, the five-year GOC yield has cascaded down to around 2.8 per cent today, roughly 85 bps below the start of this month (i.e., just two weeks ago). These important yields are also testing levels not seen for seven months, or when the Bank of Canada’s overnight rate was 200 bps lower than current levels. While the broader turmoil is a clear negative for the overall economic outlook, the Canadian housing market dances to the tune of interest rates first and foremost. The pullback in long-term yields, along with the BoC’s rate pause, may at least put a floor under housing.”

Rishi Sondhi, Economist, TD Economics, said with February’s gain, sales growth is now essentially flat on a three-month moving average basis and suggests that a bottom in activity could be forming, at least in the near-term.

“That said, tighter rules governing mortgage lending are in the pipeline (although the timing of their implementation is uncertain), which should negatively impact sales and prices,” he said.

“Average home prices picked up for the first time in six months, although benchmark prices fell. This suggests some compositional forces may have been at play (i.e. sales composition skewing to higher-valued units pushing up the average price compared to the quality-adjusted measure). The divergence between the two also suggests that we may not be out of the woods yet with respect to price weakness. That said, a lack of available inventory likely supported price levels (while restraining sales) last month.”

The Aggregate Composite MLS Home Price Index (HPI) was down 1.1 per cent on a month-over-month basis in February 2023, only about half the decline recorded the month before and the smallest month-over-month drop since last March. It now sits 15.8 per cent below its peak level, reached in February 2022.

“Looking across the country, prices are down from peak levels by more than they are nationally in most parts of Ontario and a few parts of British Columbia, and down by less elsewhere. While prices have softened to some degree almost everywhere, Calgary, Regina, Saskatoon, and St. John’s stand out as markets where home prices are barely off their peaks. Prices began to stabilize last fall in the Maritimes. Some markets in Ontario seem to be doing the same now,” said the report.

“The actual (not seasonally adjusted) national average home price was $662,437 in February 2023, down 18.9 per cent from the all-time record in February 2022 but up more than $50,000 from its January level resulting from outsized sales increases in the GTA and Greater Vancouver, two of Canada’s most active and expensive housing markets. Excluding these two markets from the calculation cut almost $135,000 from the national average price in February 2023.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)