While the drop in Canadian house sales that began in the second half of 2012 is likely to continue, the market is headed for a soft landing rather than a crash, one of the country's largest real estate agencies and a number of bank CEOs predicted Tuesday.
Their comments came as the latest data suggest that the steep drop in year-over-year home sales persisted through to the end of the year.
"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 composite number compiled by Bloomberg," economists at Bank of Nova Scotia wrote in a research note. The data, they added, are "not pretty."
But high-profile voices in the banking and real estate sectors suggested that the impact of the sales downturn will not be severe.
"Our expectation is we've got this sort of soft-landing scenario on the real estate side," Royal Bank of Canada CEO Gord Nixon told investors at a conference in Toronto on Tuesday. "We have seen a slowdown in sales and we've certainly seen a slowdown in mortgage demand, but price levels are relatively stable."
Speaking at the same conference, Bank of Montreal CEO Bill Downe said that a drop in house prices is to be expected. "House prices may just stagnate for a couple of years, and that's the definition of a soft landing," he said.
Real estate agency Royal LePage is forecasting a mild correction in the coming months. It believes that sales in the first half of the year will be slower than last year, tempering the pace at which prices have been rising. But it is predicting that by the end of 2013, the average national house price will be 1 per cent higher.
Fewer home owners listed their properties late last year as more potential buyers moved to the sidelines, Phil Soper, CEO of Royal LePage, said in a press release. The slowdown in listings kept inventory levels lower, and supported house values, he said.
The real estate agency said that it saw the price of standard two-storey houses rise 4 per cent year-over-year in the fourth quarter, to $390,444, while the national average price of condominiums sold increased 1 per cent to $239,374.
Royal LePage expects the year-over-year declines in sales that characterized the latter part of 2012 to continue. Sales volumes should improve a bit in the third quarter, it said, becoming essentially flat when it comes to year-over-year comparisons, and then show year-over-year growth in the final months of the year.
"With economic fundamentals such as employment levels improving, we expect this cyclical correction to be short-lived," Mr. Soper said.
Sal Guatieri, senior economist at BMO Nesbitt Burns, told reporters on a conference call Tuesday that a soft landing appears to be under way in most regions of the country in the wake of a decade-long boom.
"We expect it to continue this year, with sales and housing starts moderating further and prices generally stabilizing," he said, adding that the market will be supported by factors such as moderate job growth and steady immigration. "Most importantly, demand will be supported by continued low interest rates with the Bank of Canada likely on hold for another year," he said.
On the downside, the market will be restrained by elevated household debt, moderately high valuations, little pent-up demand and, most importantly, tighter mortgage rules, he added.
Royal LePage is predicting the average house price in Vancouver will decline by 3 per cent this year, while most parts of the country will see small price increases. Gains will be larger in Calgary (2.5 per cent) and Regina (4 per cent), it predicts. It expects average prices to rise by 1 per cent in Toronto.