Housing market ‘recovery’ gets a reality check

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Don’t count on that housing market recovery just yet.

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Hopes for a turnaround after gains in December and January got a dose of reality last week with reports of falling home sales in several major Canadian markets, suggesting it’s too early to sound the ‘all clear.’

“Anyone expecting smooth sailing ahead for the housing market got a reality check in February,” said Robert Hogue, an economist with Royal Bank of Canada in a report Friday.

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Declines in February partly reversed the gains of the previous two months — a reminder, Hogue says, that “very challenging affordability conditions” are still holding buyers back.

Sellers, however, did return. Hogue estimates that new listings rose between 3 and 14 per cent from the month before in Vancouver, the Fraser Valley, Edmonton, Hamilton and Montreal.

“We suspect sellers who took a pass in the fall may have taken an early jump on the upcoming spring market, warmed by news of busier activity in December and January,” he said.

The wider inventory though failed to entice buyers.

Sales in Toronto, Canada’s biggest market, fell 12 per cent from the month before, reversing half the gains seen in the previous two months.

“This up-and-down pattern could be a sign of things to come, as interest rate uncertainty and poor affordability keep buyers and sellers on their toes for the next while,” said Hogue.

Vancouver home sales are now “historically soft” at 23 per cent below the 10-year average.

“We don’t expect this softness to ease quickly. Affording the purchase of a home is extremely difficult in Vancouver and will continue to be a major constraint for buyers,” said Hogue.

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Meanwhile, sellers flooded into this market, with new listings jumping 31 per cent after an even bigger increase in January.

Calgary, “the busiest and hottest” market in the country, also slowed in February. RBC estimates that home sales fell 8 per cent month over month, reversing gains in the previous two months.

Still this market is hard to keep down. Home sales are still 60 per cent above pre-pandemic levels, and demand remains strong, thanks to the surge in population.

Calgary home prices over the past year are up the most of the markets RBC tracks, gaining over 10 per cent in February — a trend they expect will continue.

Despite falling sales, other major markets also saw slight gains in prices. The MLS Home Price Index in Toronto and Vancouver rose for the first time in months.

But don’t look for big gains on this front, Hogue cautions. RBC expects prices to stay mainly flat for the near future, and declines are possible if large numbers of sellers, some possibly distressed, continue to enter the market.

“We think a vigorous, sustained recovery won’t take shape until interest rates fall more meaningfully — something we peg for the second half of 2024,” said Hogue.

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Canada’s job numbers for February blasted past expectations Friday, more than doubling forecasts. But before you get too excited, the country’s unemployment rate also ticked up because population growth once again rose faster than job growth.

To keep up with the rising population, the economy would have needed to add 65,000 jobs, not 41,000, said Desjardins principal economist Marc Desormeaux.

Economists say the blockbuster headline hides a weakening labour market, with gains limited to self-employment and the public sector and wage growth cooling.

“Today’s report is certainly impressive at first blush, particularly the towering rise in full-time jobs,” BMO chief economist Douglas Porter said in note. “However, it’s staggeringly clear that the results are flattered by ongoing massive population gains, and the labour market is thus actually gradually cooling.”

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McLister on Mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here 

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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