Canada’s Major Real Estate Markets See Inventory Return To ‘Balanced’
The Canadian housing stock is balanced for the level of demand now that the stimulus is gone. Data from the Canadian Real Estate Association (CREA) shows that the ratio of sales to new offers was balanced in July. It was flat from the previous month but was more than 30 points below the peak reached earlier this year. Technically, the market hasn’t collapsed yet, but that’s what the sense of returning to “normal” volumes might feel like for some.
Ratio of sales to new offers
The SNLR is the industry’s preferred method of determining whether a market is hot or not and examines absorption. It’s a straightforward indicator that does what it sounds like – it compares the percentage of sales versus new listings. The higher the ratio, the tighter the market and the more likely house prices are to rise. Lower odds mean just the opposite and tend to indicate falling prices. Banks like BMO and RBC have both said they have a pretty accurate track record and tend to lead prices by around 3 months.
There are guidelines for reading and you are probably more familiar with the terms used to describe these markets. A balanced market is when the SNLR is between 40% and 60% and price growth is stalling. Above 60% is a sellers’ market when prices are rising and below 40% is a buyers’ market where prices are falling.
Again, these are just guidelines with a few important things to keep in mind. Speed is one of the more important caveats as a market can often behave as the ratio it is aiming for. That is, you can see prices rising in a buyer’s market when the ratio is rising rapidly, or falling in a seller’s market when the ratio is falling rapidly. Sentiment is the key factor here, and it changes faster than markets can react. The SNLR is a great addition to market analysis, but shouldn’t be your sole factor in reading. Now for the dates.
Canadian real estate market is a balanced market
The national SNLR is firmly in balanced territory after printing some of the tightest conditions ever this year. The seasonally adjusted SNLR was 51.7% in July, unchanged from the previous month. While that’s unchanged, that’s well below the 89% read in February, when prices rose by tens of thousands a month. While the market is balanced, prices are falling tens of thousands per month, suggesting it may just have one stop before heading lower.
Canadian Real Estate SNLR
The seasonally adjusted sales to new offers ratio for major Canadian housing markets, with more than 400 sales in June.
Source: CREA; Live better.
Halifax, Calgary and Winnipeg are the closest markets
Not all Canadian real estate markets are seeing more moderate demand. The ratio was still high in Halifax (73.9%), Calgary (68.1%) and Winnipeg (68.1%). These markets topped the list of the most important real estate markets in all of Canada.
At the bottom of the list are the markets in southern Ontario. The SNLR in Windsor-Essex (35.6%) for July makes this the only major buyer’s market. Niagara (32.5%) is the only other market below 40%, but it fell below 400 sales in June, removing it from our list of major cities. That was a little strange considering how hot Niagara Market was just a few months ago.
Greater Toronto (41.3%) was the third-lowest SNLR in July, falling almost out of breakeven. Recent price declines in the region might make people think it’s even lower, but it’s not at breakeven levels yet.
Montreal is back in a seller’s market, Vancouver is balanced
Montreal and Vancouver are not at the extremes of the list, but they are moving in opposite directions. Montreal’s SNLR was up 63% in July, up a whopping 7.1 points month-on-month. The market returned to seller territory.
Meanwhile, the SNLR in Vancouver was 45.9% in July, down 2.1 points from the previous month. The market is currently balanced, but prices are moving down fast, according to board data.
Only a minority of markets saw the SNLR rise last month, but the anecdotal discussion of this is interesting. Despite eroding financial conditions, a number of brokers have said sellers are waiting to be listed in the fall or next spring.
Some of these units have since been rented out and are benefiting from the strong rental growth. However, as lending continues to fall, prices are currently dropping by years’ worth of rent per month. A lot would have to change by September for conditions to improve dramatically.