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January home sales see largest gain since 2021

Canadian home sales experienced a significant surge in January, marking the largest gain since 2021, according to the Canadian Real Estate Association. The rise, observed for the second consecutive month, was fueled by unseasonably warm weather, contributing to a 3.7% increase in sales from the previous month, and an impressive 22% surge compared to the same period last year.

This positive momentum builds on the momentum seen in December, which witnessed an 8.7% seasonally adjusted increase in activity compared to the preceding month. The consecutive monthly upticks are viewed as instrumental in tightening market conditions, although certain regions with substantial sales gains are still witnessing a softening of prices, as outlined by CREA senior economist Shaun Cathcart.

Cathcart emphasized the evolving dynamics, stating, "Taken together, these trends suggest a market that is starting to turn a corner but is still working through the weakness of the last two years." The substantial jump in January sales from a year earlier highlights the market's vulnerability in early 2023, marking one of the weakest starts in almost two decades. However, despite the recent positive trajectory, sales in January remained around nine percent below the 10-year average.

Among the provinces, Ontario and British Columbia stand out with noteworthy gains in January sales. Ontario experienced a seasonally adjusted increase of 6.9%, while British Columbia saw a 4.5% rise. The aggregate benchmark price, representative of typical home price changes, rose by 0.6% compared to the previous year, reaching $717,800. Nevertheless, there was a month-over-month decline of 1.2% in the benchmark price.

TD economist Rishi Sondhi attributes the rise in sales and softening prices primarily to Ontario and British Columbia. Sondhi explained, "Our take on this dichotomy is that sellers capitulated on their asking price to move their homes, as conditions in these markets previously favored buyers."

The unexpected boost in sales, attributed in part to favorable weather conditions and declining bond yields, has exceeded TD's predictions. Sondhi stated, "While we had expected Canadian home sales to increase in the first quarter ... they are on track to exceed our forecast by a considerable margin."

The surge in sales outpaced the number of newly listed properties, rising 1.5% month-over-month, contributing to a more balanced market. Despite the optimistic outlook, BMO senior economist Robert Kavcic urged caution, highlighting the traditionally weaker winter months for sales. He emphasized the need to monitor spring housing numbers for a clearer trend, stating, "We'll really need to see how the numbers start to look in March and beyond."

Kavcic remains cautiously optimistic, noting encouraging signs that the market has bottomed out alongside improved sentiment and lower fixed mortgage rates, coupled with pent-up demand waiting on the sidelines. As the real estate market navigates through the early months of the year, the anticipation is high for a more comprehensive assessment of the trajectory in the coming spring months.