OTTAWA - Frigid weather was blamed Friday for a drop in Canadian home sales as 3.3 per cent fewer deals were struck in January compared with December â€” the fifth consecutive month-over-month decline.
But BMO Capital Markets chief economist Doug Porter said the nasty weather probably just accentuated a cooling that the residential real estate market has experienced in recent months.
He noted that prices have gone up substantially over the past year and predicted they will soften because of the weaker demand.
"Old Man Winter likely put a serious chill into January home sales, but underlying activity looks to be simmering down in any event," Porter said.
"Despite the gaudy price increases in January, we suspect that pricing power will eventually follow the sales lead."
The Canadian Real Estate Association said Friday sales through the Multiple Listings Service were down in more than 60 per cent of all local markets, including Toronto and Vancouver.
Meanwhile, the number of newly listed homes was up 0.2 per cent on a month-over-month basis in January.
"A number of buyers likely waited out January's deep freeze before going house hunting, particularly where I'm from in southern Ontario," CREA president Laura Leyser said in a statement.
The slowing pace of home sales comes as the rate of construction of new housing units also slowed in January, compared with December.
Canada Mortgage and Housing Corp. said earlier this week that housing starts in January came in at a seasonally adjusted annual rate of 180,248, down from 187,144 in December.
The Canadian housing market â€” which is generally viewed as overvalued â€” has been a key risk for the economy and closely watched by policy-makers.
Recent indicators have suggested that a soft landing â€” or gradual, mild pricing decline â€” may be in the works for the market, but there are persistent worries about a bubble bursting.
Compared with January 2013, CREA said last month's sales volume was up 0.4 per cent and the national average sale price rose 9.5 per cent to $388,553 â€” far faster than wage gains or overall inflation.
The association said the year-over-year climb in prices reflected a drop in sales a year ago in some of the busiest and most expensive markets, which dragged down the national average.
The MLS home price index, which CREA says is a better measure than the national average price, was up 4.83 per cent year-over-year.
The index for two-storey single family homes was up 5.57 per cent, while one-storey single family homes were up 5.32 per cent. Townhouse and row houses were up 3.94 per cent and apartments were up 3.35 per cent.
TD senior economist Francis Fong said a bounce back in sales when the spring thaw comes "would be entirely unsurprising."
"Indeed, the upcoming spring market could get an additional boost as prospective buyers lock-in to the recent pullback in mortgage rates," Fong said.
TD Bank recently suggested that home prices in Canada were about 10 per cent overvalued given the expectations for rising interest rates.
"It is worth noting that mortgage growth has slowed significantly over the last year as an increasing share of buyers are priced out of the in-demand, but expensive single-family market," Fong said.
"All said, with household indebtedness still at lofty levels and interest rates expected to grind higher over the course of this year, we continue to anticipate a soft landing in the housing market."