Canadian Home Sales Pulled Back, But Market Close To Bottom: BMO

Canadian real estate sales are getting weaker and inventory is rising, but don’t let that get in the way of a solid narrative. Canadian Real Estate Association (CREA) data shows existing home sales fell in February. The same day also shows new listings climbing, essentially producing fundamentals that indicate a weaker market. That didn’t have much influence on exuberant buyers who reinforced prices, despite the weakness. That’s led one of the country’s largest banks to conclude the market is near its bottom, and activity is likely to surge as soon as rates fall. 

Canadian Existing Home Sales Slip After Months of Recovery

Canadian existing home sales broke the winning streak, and reversed course last month. Seasonally adjusted sales fell 3.1`% in February, but they remain 19.7% higher than last year. Though the first two months of last year were the slowest in the past decade, reminds BMO chief economist Douglas Porter. 

He believes the monthly indicator is the bigger takeaway, which has been on a steady climb higher recently. The sudden surge of bond yields and decline in existing home sales are “…suggesting that it’s not going to be a one-way trip north for housing activity from last year’s soggy levels,” he warns.  

More Canadian Real Estate Sellers Are Showing Up To Market

Existing home inventory continues to climb. Seasonally adjusted monthly growth came in at 1.6% in February, marking a 24% increase from last year. Unlike sales, new listings were at a healthy level for the annual comparison.  

Fewer buyers and more inventory helped ease the sales to new listings (SNLR). “The ratio dipped slightly in February to 55.6%, almost right in the middle of what’s viewed as a normal range (45% to 65%),” explains Porter. 

The SNLR tends to trend higher in the winter, when the market is relatively illiquid. A ratio in balanced territory ahead of Spring activity may indicate there’s less pent-up demand ready to pull the trigger than the industry anticipates. 

Market Bottom Is Near, Rate Cuts Likely To Drive Activity Surge

Even with these weaker indicators, the bank did see one factor that might trigger buyers—price growth. “Despite the mild loosening in conditions last month (sales down, listings up), prices stabilized in February after a five-month skid,” Porter writes 

Adding, “Even with the latest moderate pullback in sales, the past few months of data suggest the housing market is finding a bottom.” 

A remaining frothy indicator is at play here—sentiment. Just one month of rising bond yields was able to cool demand. However, the buyers in the market were exuberant enough to not consider a loosening market in their bids. A factor that reinforces the bank’s conclusion—the market is ready to take off as soon as interest rates are cut. 

Probably not what the Bank of Canada wants to hear.

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  • Flowjo 2 months ago

    BOC is not dropping rates because it will just increase inflation.

    • Omar 2 months ago

      The CPI model was changed so any increase in pressure is met with an increase in basket weight which amplifies downward pressure to underreport inflation. Good times ahead!

  • LT 2 months ago

    There was only one recession where rate cuts boosted home prices and that was the last one, since they cut before they knew what happened and then told banks they weren’t allowed to accept any defaults.

    They can’t continually do that now that we know the last time was a scam, it’ll obliterate the currency.

  • IslandStyle 2 months ago

    I live on Vancouver Island and I am a realtor. The prices here are absurd and the locals, especially the younger generations, are without hope and are falling into depair. Causing another round of inflation, perhaps hyperinflation, is not a win for anybody.

    • Omar 2 months ago

      I mentioned this above but the CPI model was changed to allow basket weights to increase the following year, amplifying a slowdown. Essentially even if rents slow (instead of continuing to rise sharply), they’ll slow all of the CPI data.

  • [email protected] 2 months ago

    The market is no where near the bottom USA houses on good sized lots cost only 50k or less. See zillow, redfin and landsearch

    • Fraser 2 months ago

      agree….prices need to drop, 200 to 500% to be fair in this country….crazy prices for 20 years and counting…

  • Frank 2 months ago

    A problem , Canadians are overtaxed to the max, and wages have not kept up with inflation. Affordable homes can be found on PEI and Nova Scotia. As to high prices blame offshore speculators who beefed up the two most talked about markets in Canada, TO and BC.

  • Patiently Waiting 2 months ago

    The problem isn’t the BOC, it’s the government. They are now buying mortgages. In what world does this make sense? Keeping home prices high is what they want regardless of what they are saying or pretending to want to solve. The question is what is their end game? Moore tent cities.

    https://thehub.ca/2024-02-13/nicholas-neary-the-governments-costly-plan-to-purchase-canadian-mortgage-bonds-is-deeply-misguided/

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