Canada

Canadian Real Estate Is Moving From Pent-Up Demand To Pent-Up Supply

Canadian real estate inventory appears scarce, but that might be starting to change. Canadian Real Estate Association (CREA) data shows new listings grew faster than sales in March. A massive amount of sales are actually being met with even more inventory these days. Record sales are due to pent-up and pulled-forward demand, but inventory isn’t. This leads to the possibility that inventory could run longer than sales. If that were to happen, it would ease market pressures without government intervention.

Canadian Real Estate Sees New Listings Soar

New listings for Canadian real estate were some of the highest on record last month. Seasonally adjusted there were 86,212 new listings in March, up 7.45% from a month before. Unadjusted new listings reached 105,001, up 50.72% compared to the same month last year. This is an exceptional amount of inventory coming to market all at once.

Canadian Real Estate New Listings

The seasonally adjusted number of monthly new listings processed on the Canadian MLS.
Source: CREA; Better Dwelling.

The number of new listings hitting the market was some of the highest ever seen. Seasonally adjusted new listings were a record high, as was the month-over-month growth. Unadjusted new listings were just under the May 2017 record high. That was the month non-resident buying rules were introduced. As for annual unadjusted growth, that’s also at an all-time high. The market rarely sees this much inventory coming to market at once.

Canadian Home Sales Reach A Record High

Canadian home sales are consuming the supply at an unusually high rate. Seasonally adjusted home sales reached 69,421 in March, up 5.22% from the previous month. The unadjusted number was 76,259, up 76.20% compared to a year before. It was an all-time record high, any way you measured it. Unadjusted annual growth also reached a new record high.

Canadian Real Estate Sales

The seasonally adjusted number of monthly home sales processed on the Canadian MLS.
Source: CREA; Better Dwelling.

Canadian Real Estate Better Balanced Than A Few Months Ago

The market is still extremely tight, but a little pressure is starting to release. The sales to new listings ratio (SNLR) fell to 72.63% in March, falling closer to balanced. Inventory is still tight compared to home sales, but it’s almost half the record high of 118.53% hit in December. It may not seem that way due to the headlines on home sales, but this is a much more relaxed market. Relatively speaking, of course.

Canadian Real Estate SNLR

The sales to new listings ratio (SNLR) for Canadian real estate, both unadjusted and seasonally adjusted.
Source: CREA; Better Dwelling.

Home sales are rising primarily due to pent-up and pulled-forward demand. The former is due to the restrictions on home sales, which pushed some buyers into later months. The pulled forward demand breaks down into two segments. The first is people motivated to take advantage of record low mortgage rates, and accelerating their buy. The second is people that are being driven by FOMO, and feel they need to buy ASAP, before they’re priced out of the market forever.  Both of these trends happening at the same time is a once-in-a-lifetime situation. Two trends that rarely happen at once, are pushing buyers into the same small window of sales. Naturally, this is forcing a lot more competition than normal.

The same trend that caused pent-up demand also caused pent-up inventory. Selling a principal home or investment during a pandemic doesn’t strike many as ideal. This pushed many sellers to list later in the year. Combine that with more investors planning to cash in on massive price growth this year. It makes the odds of new inventory rising for a longer period than sales a lot higher. If that materializes into lower prices or just lower price growth, is another story.

Economists have been saying Canada’s hot market is not an issue of low supply. The data shows this is true, with markets being better supplied than usual. Demand-side stimulus is motivating buyers to consume any inventory — at any price though. It wouldn’t matter how much inventory came to market, an exuberant buyer is an exuberant buyer. They’ll buy it as quickly as possible, and are ready to pay as much as they can. 

The market cooling on its own as the year goes on has been a popular call. The Bank of Canada (BoC) previously said they expect the market to cool in the second half of this year. A number of economists also expect the BoC to temper expectations this Wednesday. This comes after the BoC was blamed for sparking FOMO, and the Federal government said they would not let prices fall

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10 Comments

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  • Adam J 1 week ago

    It would be more surprising if sales didn’t fall from these levels.

  • GTA Landlord 1 week ago

    This is an important lesson people need to understand, and it’s really basic.

    Interest rates drop, it PULLS demand forward.

    Interest rates rise, it PUSHES demand forward.

    By continually pushing rates lower, they’re creating a big buying gap while trying to push more inventory to market. A dangerous game they’re playing by trying to push and pull demand, to create economic activity from shelter instead of what people in the shelter do.

  • Bill 1 week ago

    The politicians running Canada do not care about young people. Housing bubbles enrich the property investor class while making life harder for the working class.
    The Liberal plan to bring in 400,000 newcomers a year is nothing but a Ponzi scheme to get more consumers into Canada.

  • D 1 week ago

    According to credit sussie, there are approximately 4-5 million Chinese millionaires in mainland China. How much do you want to bet a few hundred thousand of them have at least one home in Canada?

  • D.was 1 week ago

    According to credit sussie, there are approximately 4-5 million Chinese millionaires in mainland China. How much do you want to bet a few hundred thousand of them have at least one home in Canada?

  • Ashley 1 week ago

    A petition has been filed against BoC for inflating real estate prices: https://petitions.ourcommons.ca/en/Petition/Details?Petition=e-3327

    Another push to get the message heard by the deaf govt..

  • Sam 1 week ago

    “There’s been class warfare for the last 20 years, and my class has won”–Warren Buffet….and guess whom the Canadian government is supporting by increasing the value for the have´s (real estate owners) and letting down the not-have´s.

  • Frank Marra 7 days ago

    Amen, I’ve been saying this for a long while, immigration levels are way too high.

    • David Tims 6 days ago

      Marra?? … Doesn’t sound too white ango-saxon to me….. In fact I bet there were some immigrants to Canada named Marra in the past 75 years…. Canadian immigration polices are aimed at attracting the very best and brightest from around the world …. Think about that next time you are in the Emergency Ward or hire an engineer

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