There’s a lot of media reports today about the impact of falling oil prices on the Canadian housing market, which has led to a dramatic fall in sales, particularly near the oil patch in Alberta.
According to the Canadian Real Estate Association (CREA), Canadian home sales fell by 3.1% in January – the third consecutive monthly decline – and by 2% over the year, reflecting weakened activity in the oil sands strongholds of Calgary and Edmonton. Sales were down from the previous month in about 60% of all local housing markets. And if Calgary and Edmonton are removed from the national totals, then combined sales activity is 1.9% above year-ago levels, according to CREA (see below charts).
According to TD economist, Diana Petramala:
There is “a widening regional wedge” in Canada’s housing markets… as oil-importing cities’ housing markets benefit from lower oil prices while producer cities struggle…
Petramala sees a 10% decline in house prices from peak to trough in the energy cities.
Likewise, senior TD macro strategist, Mazen Issa, noted:
“The regional breakdown reveals a rush of homeowners looking to obtain top dollar before their respective regional housing market nosedives on the price… There is a clear sense of panic.”
Certainly, the slowdown across the oil sands regions is yet to show up in prices, with Teranet revealing that prices nationally rose by 0.2% in January to be up 4.2% over the year. Further, Vancouver and Toronto hit record highs, although Canada’s second biggest city – Montreal – has fallen by 1.5% over the past year (see below charts).
Like Australia with iron ore, Canada is a commodity exporter that is highly dependent on oil to derive national income. And with oil prices in free fall, Canada’s terms-of-trade is getting smashed, leading to the prospect of an income shock bringing its highly inflated housing market down as Canada’s heavily indebted households deleverage.
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