Another round of data is driving home the fact that the country's once-hot housing market has shifted into lower gear. The number of homes sold in Canada in February plummeted 15.8 per cent from the same period last year, the Canadian Real Estate Association said on Friday.
At the same time, the association cut its forecast and now predicts 441,500 sales of existing homes in 2013, down 2.9 per cent from last year’s level. But in 2014, CREA forecasts that national activity will rebound by 4.5 per cent to 461,200 units, reflecting a slow and steady grind higher in activity.
The data drives home the fact that Canada's housing market is undergoing a soft patch, cooling especially since Ottawa implemented a fourth round of mortgage restrictions last summer to help consumers get a grip on soaring debt levels and calm down a frothy real estate market.
"Sales activity has been flying at a lower altitude..." CREA chief economist Gregory Klump said in a statement. But he added comparisons to months in the first half of 2012, prior to the mortgage tightening rules, are predictably going to be down significantly, "but not necessarily be indicative of further deterioration."
"Looking at the monthly trend since then shows that we've been seeing reasonably stable trends for demand and prices," he said.
On a monthly basis, national existing home sales fell by 2.1 per cent in February, following a modest increase in January.
Mazen Issa, Canada macro strategist at TD Securities, expects sales activity to stabilize later this year. To get the full impact of tighter mortgage rules, observers may need to wait until after the Spring housing market when activity typically picks up.
"Tighter mortgage regulations implemented last July have had a notable impact on cooling housing activity," he wrote.
"However, with interest rates still very low and likely to remain so for a long time, there is only so much that mortgage regulations can do to keep the housing market down and thus the impact of stricter conditions should be only transitory."
The year-over-year monthly decline in the number of existing home sales in February, not seasonally adjusted, was steeper than January's decline of roughly 5 per cent.
The industry group also said the February national average sales price was $368,895, a one per cent dip from the same period last year, with fewer sales compared to year ago levels in relatively pricey Vancouver that continues to weigh on the national average sale price.
But the composite index known as the MLS Home Price Index, seen widely as a better gauge of house prices because it is not affected by a change in the types of sales, rose 2.7 per cent on a year-over-year basis in February, said CREA, noting it was the smallest gain since March 2011.
The association also stressed the slowdown in many big markets is being offset by activity in many smaller and more affordable markets that were less impacted by last year's mortgage rule changes.
"This serves as a reminder that all real estate is local," said Wayne Moen, CREA's president.
Market observers have been speculating for months whether the market is headed for a soft landing or thud. So far, so good it appears. Sales are largely expected to remain weak throughout the rest of the year and prices to fall only modestly, suggesting a soft landing scenario.
With the updated forecast, CREA anticipates Alberta and Manitoba will be the only provinces where sales are expected to rise modestly in 2013.
Regionally, the percentage decline in sales in Saskatchewan, Ontario, Quebec, and Nova Scotia is expected to exceed the national result this year, while the percentage decline in sales in British Columbia, New Brunswick, and Newfoundland and Labrador is forecast to be less than the national result.
In 2014, British Columbia is forecast to see the strongest sales increase, up 9.5 per cent, with most other provinces forecast to post gains between three and five per cent as moderate economic, job, population, and income growth offsets small and gradual interest rates increases next year, CREA said.