Canadian home sales had their worst April in 36 years, but prices holding steady for now

Canada's residential real estate market plunged dramatically last month, as the uncertainty surrounding COVID-19 pushed buyers and sellers to the sidelines.

Home sales fell by more than 56 per cent from the previous month's level, which makes the month the worst April for home sales since 1984, the Canadian Real Estate Association said Friday.

Canada's housing market is highly seasonal, as sales are generally low through the start of the year because of cold weather before heating up in the spring and through the summer. It then slows down again through the rest of the year before beginning the cycle again.

But the COVID-19 pandemic has thrown those trends out the window, as lockdowns and physical distancing measures have put a chill on home buying right as the market normally tends to heat up.

"Like so many other parts of normal daily life, a lot of buying and selling activity in housing markets across Canada has been put on pause," the CREA's chief economist Shaun Cathcart said.

The CREA said it saw the trend begin in March, which started out strong before sales plunged in the latter half of the month. All in all, March sales were down by 15 per cent from February's level. Now, April is almost 60 per cent below that record low.

"The housing market has, in unprecedented fashion, effectively shut down and closed for business," Bank of Montreal economist Robert Kavcic said of the numbers.

Prices holding steady for now

The number of homes sold is in free fall, but so far average prices are not plummeting as sellers try to ride out the pandemic.

The average price of a home sold by a realtor last month was $488,000, down by 1.3 per cent from April 2019.

While prices seem to be flat, on average, compared to last year, there are signs that they aren't immune to negative pressure. April's average price was 10 per cent lower than March's, an almost unprecedented development given the seasonal nature of Canadian real estate.

While house prices are undeniably under pressure, Toronto-Dominion Bank economist Brian DePratto says April's numbers need to be taken with a grain of salt.

"Weaker activity at the higher end of the market took on an even bigger role in shaping average prices given the unprecedented low level of transactions," he said.

Sales of high-end homes were down in Toronto and Vancouver, the two priciest markets in the country. Without those big sales prices acting as a magnet pulling up the average, the average price figure will look even more wonky than it normally does, according to DePratto.

"With activity shrinking so dramatically and likely to stay depressed for several months, average prices will likely be distorted," he said.

CREA acknowledges that its average selling price can be misleading, which is why for several years the group has been tabulating another figure, the House Price Index or HPI, which it says is a better gauge of the market because it strips out distortions such as "changes in the mix of sales activity from one month to the next."

The HPI inched down by 0.6 per cent in April, the first monthly decline in almost a year. "While some downward pressure on prices is to be expected, the comparatively small change underscores the extent to which the bigger picture is one where so much activity on both the selling and buying side is currently on pause," the CREA said.

It's not hard to see why average selling prices could be misleading.

Normally, a homeowner living in a home they think is worth $1 million would list their home and see what offers come in. If the offers they receive aren't to their liking — say, $800,000 in our example — they likely just won't sell unless they have to, so that lower-than-expected house valuation doesn't get recorded in the official numbers anywhere.

It stands to reason that the only homeowners selling right now are either happy with the offers they're getting, or they are selling for less than they'd hoped, or even at a loss, because they are being forced to due to job loss or other COVID-related factors.

For BMO's Kavcic, there won't be a true picture of what's happening in home prices until buying and selling real estate can get back to what he calls "some semblance of normalcy."

"It's going to be a race between sales and listings out of the gate to determine how the market balance shapes up, and where prices move in the near term," Kavcic said.

Unprecedented government income support measures such as CEWS and CERB will likely help limit panicky forced selling at depressed prices by owners who've lost their jobs and income. But they can't stop all the downward pressure, and certainly not forever.

"It's probably a big stretch to assume that the market will just go back to where it was pre-pandemic," Kavcic said. "Job market weakness will linger in certain sectors, and there could be investor-owned supply waiting to come to the market at first chance."