| || ||Robin Wiebe |
Senior Economist, Centre for Municipal Studies
Winter is a fact of life in Canada, and citizens typically face it stoically. But this past winter's onslaught seemed particularly severe. The snow came early and lingered late. We learned new terms, like "polar vortex." The harsh weather was blamed for a variety of economic ills, including a weaker housing market—but how much of a bite did the hard winter really take out of housing? We think housing starts and sales of existing housing both took small but noticeable hits in the first quarter, although not enough to significantly alter expected annual volumes.
Let's start with the weather. In Toronto, Environment Canada data showed the average temperature between January and March (i.e., the first quarter, or "winter") of this year was about –7 degrees Celsius. This compares with an average of –2.5°C during the 10 previous winters—in other words, this past winter was significantly colder. Snowfall volumes measured 101 centimetres this winter, 25 cm above the previous decade's average of about 76 cm. (See Chart 1.) Moreover, this winter probably seemed worse because the prior two winters were relatively tame. The winter of 2013 was close to average, in terms of both temperature and snowfall. But the winter of 2012 was mild, with an average temperature above zero and snowfall less than half the 10-year average. Toronto got lucky that year!
In general, winter is an unforgiving time for housing markets. Working outside in inclement weather to build new homes is physically demanding and sometimes dangerous. Moreover, some construction materials behave differently or are simply unusable below water's freezing point. On average, only one-fifth of Toronto's annual housing starts occur in the winter, even though winter constitutes one-quarter of the year. In numbers, about 7,300 new housing units were built on average in the first quarter between 2003 and 2012.
Resale homes face somewhat fewer challenges, but it remains hard for buyers to evaluate snow-covered properties, even if they are motivated to house-shop in the cold. In the past decade, fewer than 22 per cent of existing national housing sales occurred in each year's first quarter, or about 19,000 units on average.
But during the first quarter of 2014, Toronto saw about 18,000 sales and 7,000 starts—both below their 10-year averages. Our statistical analysis found that snow and lower temperatures were both significantly linked to fewer sales of existing homes, while colder weather appears to significantly dampen only starts. The ability of Toronto's new construction businesses to take winter precipitation in stride could be because construction firms have equipment to move it.
The bottom line? Both sales (see Chart 2) and starts were knocked off-track this winter, but not fatally. Compared with an "average" year, Toronto likely had about 1,700 (or 9 per cent) fewer sales during this year's first quarter than in a "normal" winter. Housing starts dipped a bit, falling about 5 per cent.
Yes, the winter of 2014 was tough and it did cut housing activity, but the resulting drops were relatively minor. More important, over the coming quarters, home sales and housing starts may accelerate to recover lost ground. So for 2014 as a whole, Toronto's very cold winter may end up having a negligible impact on the city's housing market.