The sharp year-over-year decline in national home sales that weighed on the housing market through the second half of 2012 persisted right through to the new year, the Canadian Real Estate Association is expected to report Tuesday when it releases December's figures.
Observers now expect the softness to continue into 2013, and foresee the decline in sales causing price growth to stagnate. But many suggest this is a healthy phenomenon: if prices hold flat for much of the year while the economy and incomes continue to grow, that should remove some froth from the market, decreasing the chances of a more significant correction when interest rates ultimately rise and eat into affordability.
"Stepping back and looking at the market overall, it is clear now that it peaked nationally in the May to June time frame," Royal LePage CEO Phil Soper said in an interview. "This cyclical correction is well under way, and I would expect that it would continue through the first half of 2013."
When the real estate agency made its 2012 predictions about a year ago, it assumed that interest rates would rise in the latter part of the year. But low rates continue to support housing demand.
"It appears now that we are going to have a very supportive interest-rate mortgage environment right through this year and probably through the spring market of 2014, so when you look at the natural cyclical correction that we were due for, but you plot that against strengthening job numbers and supportive monetary policy, I really do think that this will be a relatively mild correction in the Canadian housing market, with regional variations," Mr. Soper said.
The market is still feeling the lagged impact of tighter mortgage insurance rules and bank lending restrictions that took effect this summer, "but I don't think the government has gone too far," said TD Bank chief economist Craig Alexander. "Quite frankly I think the cooling that we're having in the market is healthy."
A number of economists and policy makers have been concerned that house prices and consumer debt levels were rising too far, too fast.
"I do believe the December sales numbers are going to be weak, and then we probably are going to have a few more months of weakness, but there's a possibility that the markets could start to stabilize as early as the spring," Mr. Alexander added, noting that the impact of recent rounds of rule tightening generally lasted for only a couple of quarters.
Data already released by local real estate boards indicate the numbers won't be pretty, Scotiabank economist Derek Holt pointed out in a research note.
"The number of existing homes sold fell by an average of 18.6 per cent year-over-year using a sample that includes Vancouver, Toronto, Ottawa, Calgary, Edmonton, Kitchener, the Fraser Valley, Victoria, Saskatoon, and Regina, according to a number compiled by Bloomberg," Mr. Holt noted. "The steepest declines were in Vancouver (down 30.6 per cent year-over-year), Saskatoon (down 20.8 per cent year-over-year), and Toronto (down 19.5 per cent year-over-year); in other words, it looks to be a national phenomenon."
"I think it will be a report with a lot of minus signs," said CIBC economist Benjamin Tal.
Calgary is an outlier, with sales nudging up 5.7 per cent. Prices in that city were up 8.6 per cent from a year earlier, but the Calgary Real Estate Board is forecasting sales growth to slow to 2 per cent in 2013, as easing employment growth and migration levels moderate the demand for housing. It expects prices to rise by 2.9 per cent this year.
"While some major markets in Canada are contracting, we're in a position of expecting some growth," Bob Jablonski, president of the Calgary Real Estate Board's board of directors, said in a press release.
Vancouver, the Fraser Valley and Regina, on the other hand, each saw prices drop from a year ago in December. And Toronto's market will be closely watched in the year ahead, with many experts calling for a significant slowdown in the condo market.
"The condo builders seem undeterred in Toronto, they're still going for permits like crazy," said Robin Wiebe, a senior economist at the Conference Board of Canada.