The housing market is crawling out of its winter slump, but it isn't showing the energy that it normally does as spring kicks off.
The number of existing homes that changed hands last month over the Multiple Listing Service was 4.9 per cent higher than a year ago, the Canadian Real Estate Association said Tuesday.
But in March of 2013 the market was still reverberating from tighter mortgage insurance rules that took effect eight months earlier. Last month's sales level is actually 8.2 per cent below the average level of March sales over the past ten years, and according to Toronto-Dominion Bank economists it's 30 per cent below the peak reached in May 2012.
The question is whether lower mortgage rates and better weather will spur more buyers into action during the next couple of months – the most important time of year for home sales. Looking over the longer term, most economists still expect mortgage rates and the supply of available homes for sale to rise, putting a lid on home prices.
Indeed, observers say low constrained supply is what's holding the market back in a number of locations.
"Listings have been light over the winter, even relative to the seasonal norm in many cities, so the real test of market health will be seen in the next few months, as both weather and listings warm up," Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote in a research note. "House price resilience won't truly be put to the test, however, until mortgage rates begin to head meaningfully higher in 2015."
The Canadian Real Estate Association (CREA) said the average selling price of homes across the country during March was six per cent higher than a year earlier. That's down from the 8 to 10 per cent pace recorded since last July, Toronto-Dominion Bank economist Diana Petramala noted.
National averages can be distorted by the country's priciest markets. CREA said the deceleration was largely a result of lower sales in Vancouver, where homes are expensive. Ms. Petramala notes Toronto has seen a gradual deceleration in average home price increases to 7.3 per cent (year-over-year) in March, from 11 per cent in November.
The MLS Home Price Index, which attempts to adjust for changes in the location of homes that are selling, rose 5.2 per cent from a year earlier, with Toronto and Calgary leading the way.
The 4.9 per cent year-over-year gain in home sales reflects a mixed picture across the country. For instance, sales were down 2.6 per cent in Montreal, but up 20.5 per cent in Calgary and 13.7 per cent in Vancouver. Toronto posted a 4.1 per cent gain from March of 2013.
March's sales were up one per cent from February on a seasonally adjusted basis, marking the second monthly increase after five consecutive months in which sales fell from the prior month. Calgary, Edmonton and Saskatoon were among the cities showing solid increases from February, while Vancouver, Winnipeg and Montreal registered declines, noted Royal Bank of Canada economist Robert Hogue.
Mr. Hogue said he expects lower mortgage rates and better weather to drive an increase in sales in the months ahead. But he believes worsening affordability will affect the market next year, causing sales of existing homes to fall by 2.1 per cent nationally and home prices to edge down 0.1 per cent.
"Downside risks facing Canada's housing market will continue to be many," he wrote.