The Canadian real estate market has been very tight in terms of supply, but that’s beginning to change. The sales to new listings ratio (SNLR) made a sharp decline in April, according to data from the Canadian Real Estate Association (CREA). Declines were seen at both the national level, as well as the majority of major markets. For the past few months, the number of buyers has dropped much faster than sellers.
Sales To New Listings Ratio (SNLR)
The sales to new listings ratio (SNLR) is the number of home sales compared to new listings. It’s one way to gauge the strength of supply and tells us how quickly inventory is being replaced. Better-supplied markets, where inventory grows much faster than buyers, often see prices fall. Likewise, a tight market with few sellers and many buyers will see prices rise.
The SNLR isn’t an exact science, but there are some guidelines to help interpret the levels. If the ratio is between 40% and 60%, the market is balanced and prices are right for the level of demand. If the ratio is above 60%, it’s a sellers’ market where prices are expected to rise. If the SNLR falls below 40%, it’s a buyers’ market where prices are expected to fall.
Once again, these are just industry guidelines for reading the indicator. Each market has its own ratios that local buyers respond to. Some will always skew higher, and some will always skew lower.
An important note to keep in mind is the velocity of the changes in SNLR. Fast-moving indicators can see markets act like where they are heading, instead of where they currently are. A ratio can be quickly rising, see higher prices, and still be in buyers’ market. That’s because the expectation is it will be in a sellers’ market soon, which maybe enough to drive prices higher. Same deal going in the opposite direction, with falling prices in a sellers’ market.
Sentiment sometimes leads an indicator, so it’s worth keeping an eye on big swings. This also isn’t a foolproof system, so it should be one of the many indicators you look at to form an opinion. Think of it as your starting point — not a single, conclusive indicator.
Canada Is Seeing Homebuyers Drop Faster Than Home Sellers
New resale inventory is coming in much faster than sales over the past few months. The SNLR fell to a seasonally adjusted 75.2% in April, down 6.1 points from the previous month. This is a very sharp decline from the 90.87% seen in January. It’s still a very high rate but is dropping very quickly — with only 9 major markets seeing the SNLR rise.
Canadian Real Estate SNLRThe seasonally adjusted sales to new listings ratio (SNLR) for Canada at the national level. Source: CREA; Better Dwelling.
Ontario and Quebec Sees Markets Cooling The Fastest
The fastest cooling markets are light on inventory, but that may change very quickly at this rate. Ottawa saw the biggest drop with an SNLR of 75.6% in April, down 25.6 points from the month before. Gatineau followed with 77.8%, down 16.7 points over the same period. Hamilton came in third with an SNLR of 72.5%, down 15.8 points from a month before. All three markets have seen prices soar, so buyers were probably hoping for this bucket of ice water.
Canadian Real Estate SNLRThe seasonally adjusted sales to new listings ratio (SNLR) for major Canadian real estate markets in April 2021, compared to a month before. Source: CREA; Better Dwelling.
Some Smaller Real Estate Markets Are Seeing Inventory Become Tighter
A few smaller cities are still seeing inventory tighten, bucking the general trend. Saguenay saw the largest increase with its SNLR reaching 112.2% in April, up 22.2 points from a month before. Saint John followed with an SNLR of 96%, up 12 points over the same period. In third was Thunder Bay with the SNLR hitting 100.4%, up 10.8 points from a month before. These regions also have very high ratios but are also very small markets in the first place.
Canadian Real Estate SNLR ChangeThe monthly percent change of the seasonally adjusted sales to new listings ratio (SNLR) for major Canadian real estate markets in April 2021. Source: CREA; Better Dwelling.
Toronto and Vancouver Are Both Seeing Buyers Fall Faster Than Sellers
Toronto and Vancouver residential real estate both saw sharp SNLR declines. Toronto’s SNLR fell to 65.9% in April, down 6.2 points from the month before. The ratio for the region is now the third-lowest of Canada’s major real estate markets. Vancouver is a little higher with its SNLR at 68.1% in April, down 12.2 points from the month before. Both of these ratios indicate inventory is still tight, but not as tight as a few months ago.
Canadian housing inventory is still tight, and home prices are still moving very fast. However, sales are falling much faster than new listings, and have been for a few months. It does appear the tightest window of the market has passed, meaning price growth may slow in the not-so-distant future. At the current rate of growth, prices have a big cushion for deceleration though.
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