Canada

Canadian Real Estate Markets Are Seeing A Big Shift, As Buyers Drop Faster Than Sellers

Canadian real estate markets are seeing a shift from peak activity earlier this year. Canadian Real Estate Association (CREA) data shows the sales to new listings ratio (SNLR) fell in May. This is the fourth consecutive month the ratio has fallen since reaching a peak in January. While the SNLR is still high, buyers are dropping out of sales activity faster than sellers. The majority of markets are now seeing ratios fall, and are much lower than the peak.

Sales To New Listings Ratio (SNLR)

The sales to new listing ratio (SNLR) is one of the ways the industry measures how hot the market is. Rather than just looking at how many people are buying or selling, they compare the ratio. The higher the ratio of sales to new listings, the faster inventory is being absorbed by the market. In this case, prices usually rise to take advantage of the hot demand (or buyers offer more to crowd out others). Lower ratios mean more inventory is building, often resulting in price cuts. Typical supply and demand stuff. 

The industry has a few general guidelines to make sense of the ratios. You probably recognize the terms: A buyers market, when the SNLR is lower than 40 percent; a sellers market, when the SNLR is above 60 percent; and a balanced market, when the SNLR is between 40 and 60 percent. Once again, these are just guidelines. Each market responds to its own unique long-term ranges. It does give us an idea of the direction of things though.

One thing to be aware of is velocity, which often trumps the actual reading — like with most indicators. Fast-rising ratios can see a market act like a sellers market, even though the reading may be a buyers market. A fast-falling ratio can see prices stall, or even fall, despite reading as a sellers market. The ratio is only a guideline, and should be checked against other indicators. Now, let’s look at where these readings are.

Canada Is Seeing Buyers Drop Out of The Market Faster Than Sellers

Existing home sales fell faster than new listings last month. The seasonally adjusted aggregate SNLR fell to 75.4 percent in May, down 0.8 points from the previous month. It was the fourth consecutive month to see the ratio slip, which is now down 15.4 points from the January high. Not quite a balanced market yet, but a very different market from a few months ago. Pressure is starting to release as the economy reopens.

Canadian Real Estate SNLR

The sales to new listings ratio (SNLR) for major Canadian real estate markets in May 2021.

Source: CREA; Better Dwelling.

A Few Smaller Cities Are Still Seeing Market Conditions Tighten

Peripheral markets, those surrounding the biggest, are leading for gains. Fraser Valley had the largest SNLR increase with a ratio of 81.4 percent in May, a 10.5 point monthly climb. The market is so close to Vancouver, agents often serve both regions.

The second fastest-rising ratio is in Hamilton, just an hour away from Toronto. The city saw its ratio rise to 85 percent in May, up 10.2 points from the month before. It’s a very sharp increase, especially considering the premium buyers are paying.

The third fastest region is Sudbury, which appears to be an exception, and not tied to bigger regions. The SNLR for the city hit 91.8 percent in May, up 6.6 points in a month. The ratio is extremely tight, but also a relatively low volume market.

Small Cities Are Also Seeing The Faster Falling Ratios, As Affordability Fades

High home prices are deterring buyers, even in more affordable markets. Saguenay’s SNLR made the biggest drop in the country, falling to 81.9 percent in May. It’s down 31.1 points from the month before. The ratio is still very, very high — but the abrupt cut most likely means a change in sentiment popped up. 

Trois Rivières is the second-fastest cooling market. The region’s ratio fell to 74.7 percent, down 17.5 points from the month before. It is still a very high ratio, but the cut is a very rapid shift in the environment.

Winnipeg experienced the third-largest drop in ratio. The SNLR fell to 81.2 percent, down 14.1 points from a month before. Once again, a very abrupt change. Though the market is still very tight, like most of Canada.

Canadian Real Estate SNLR Change

The seasonally adjusted monthly point change in the sales to new listings ratio (SNLR) for major Canadian real estate markets in May.

Source: CREA; Better Dwelling.

Toronto Sees Buyers Drop Faster Than Sellers For The Fourth Consecutive Month

Toronto was absent from the top and bottom of the list, only seeing a slight decline in the ratio last month. The SNLR came in at 67.8 percent in May, down 0.2 points from the month before. Not exactly an alarming decline, but the ratio is now down 18.26 points from the January peak. It’s the fourth consecutive month the market has seen the ratio decline. 

Vancouver Real Estate Is Almost Balanced, With The Lowest Ratio In The Country

Vancouver barely missed the Bottom 3 for fastest falling, with the fourth-biggest drop. The SNLR fell to 61.4 percent in May, down 8.5 points from the previous month. It’s down 18.9 points from the March peak, as the region becomes better supplied. Vancouver actually has the lowest ratio in the country now. Which frankly says more about the country than it does about Vancouver. Without a change in demand, the market is likely to slip into balanced territory next month.

The ratio is falling in most markets, but prices are still generally booming. Market conditions are still very tight, they’re just a little more relaxed from a few months ago. A drop from peak frenzy can deflate some of the frothier market aspects like bidding wars, or at least lower the premium. Price growth historically follows fast-falling SNLRs.

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16 Comments

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  • Van YIMBY 3 months ago

    There are even more sellers banking on back to school (and international student arrivals) making the market hotter. If those arriving don’t stimulate purchase demand, it’s going to be another wave of supply. Never been happier about all of this building.

    • Simon Chan 3 months ago

      LOL. Schools aren’t opening this fall. People must be dreaming if they think that’s a possibility. They’re going to be stuck bag holding if they aren’t careful.

      • Trader Jim 3 months ago

        I could be wrong, but I believe students are coming back in as we speak. They just need to be quarantine.

        This is also I’m guessing why we have so many vaccines coming, to make sure incoming people can be vaccinated relatively fast after arriving.

        • Kate 3 months ago

          I know as a fact that several colleges in Ontario will have only remote mode for the majority classes.

  • Jason Chau 3 months ago

    Higher rates are coming. I don’t know if prices are going to rise or fall, but investors should consider they just made a decade worth of rental income on the properties.

    I personally would sell a place like Vancouver, and look to a place like Calgary. Canadians care less about politics these days, and more about finding an affordable city. Rent is still palatable, so I wager they’ll benefit from a lot of young people.

    • GTA Landlord 3 months ago

      This is why you’re seeing a lot of the old school landlords selling right now. They might be collecting ~$1,200 to $1,400 per unit, that’s up $500,000 in a year for a low rise in Toronto.

      You can tell which ones aren’t even close to rent, because the agent calculates the yield with a qualifier like “potential yield” or “at market rates,” instead of saying the residents are at market rates. Which is like winking and whispering, “these numbers work if you renovict your long-time tenants.”

      • Doomcouver 3 months ago

        I don’t know about Toronto but in BC a lot of municipalities and the province are tightening the renoviction loophole. Unless you’re completely gutting a rental unit, you’ll be forced by the RTB to rennovate with the tenants still living there.

    • Sara jones 3 months ago

      Better dwelling is a rag. Always posting negative and generally wrong info on the Canadian housing market. I’d like to see where their funding is coming from? A buyers market is 0 to 12% a balanced is 12 to 20% and buyers 20%+. This is common knowledge in the realestate industry. Better dwelling just makes up numbers to fit their narrative

      • RW 3 months ago

        Jeez, some of you agents are an embaressment to our industry. You’re thinking of the SALES TO ACTIVE LISTINGS RATIO. They’re talking about the SALES TO NEW LISTINGS RATIO (SNLR)

        From CREA: “A national sales-to-new listings ratio of between 40% and 60% is generally consistent with a balanced national housing market, with readings below and above this range indicating buyers’ and sellers’ markets respectively. That said, the balanced range can vary among local markets.”

        So Better Dwelling is wrong, the industry is wrong, and you’re the only genius that can read. Good job.

        If you can actually read and were slightly competent, you wouldn’t just see what you want to.

      • pete 3 months ago

        absolutely NOT
        No one can predict bubble
        BD gives great analysis

      • Jason Chau 3 months ago

        It might just be above your comprehension level, because this is almost exactly what three banks have written today. You think the banks and Better Dwelling are in cahoots to publish the numbers on a chart, and the relevant part of the textbooks on how to read the charts? It’s a real scandal what they’re doing.

  • Poolio 3 months ago

    The narrative went from its a lack of supply causing higher prices, to your friends are now the reason Blackrock needs to buy the houses.

    https://www.theatlantic.com/ideas/archive/2021/06/blackrock-ruining-us-housing-market/619224/

    • Doomcouver 3 months ago

      Housing bulls will make up any excuse possible to distract from the fact it’s predominantly a speculative demand problem.

  • Alex Lapukhin 3 months ago

    I’ve been reading about the impending “shift” for the past 20 years. The predictions of where the market is going never seem to materialize. Thecherry on top was last year’s forecast from the ultimate authority on real estate here in Canada – CMHC. It failed in its predictions spectacularly.

    • Van YIMBY 3 months ago

      You’ve been reading about the shift when the market was still falling in real terms? Feels like a long time. The delusion is strong with many.

    • Pete 3 months ago

      Last re crash in Toronto was 30 years ago, might happen again.

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