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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