Canadian Real Estate Prices Are On Track To Drop $68k By Mid-Summer

Canadian real estate has cooled even faster than bears assumed possible. The sales to new listings ratio (SNLR) indicates it’s just getting started. If historic patterns hold true, the market will see all of 2022’s gains disappear by mid-summer. Unless something changes the trend, home prices are heading in the direction of improved affordability.

Sales To New Listings Ratio (SNLR) 

The sales to new listings ratio (SNLR) is a simple but powerful indicator for getting a picture on demand. It’s a straightforward measure of the share of homes sold to homes being listed for sale. In Canada, this is the industry’s preferred measure of relative inventory demand for the current price point.  

If you’ve ever heard the terms sellers’ or buyers’ market, this is the measure typically used to determine it. An SNLR above 60% is a sellers’ market (prices tend to rise) and below 40% is a buyers’ market (prices fall). Between 40% and 60% is balanced, where the market is priced just right for demand. Since markets are self-balancing without state intervention, prices fall until demand returns.

The SNLR isn’t just great for an active gauge of demand but it’s pretty good for checking where prices are heading. Previously we explained that the SNLR leads the market by about 3-months. More recently, an analysis from BMO confirmed that finding. So let’s check out where the trend is projected to take the market. 

Canadian Real Estate Prices Have Shown A Close Relationship With Inventory

First let’s discuss how this trend has performed over the past few months. Canada’s major cities had an aggregate SNLR of 57.55% in May, down from 66% a month before. The market officially entered balanced for the first time since June 2019. It’s been a minute since the market was this slow. 

Using the SNLR to forecast previous months has produced solid estimates recently. The benchmark (“typical”) home price peaked at $839,000 in March, a record high. The SNLR indicated a swing would occur, forecasting the benchmark at $829,900 in April. The actual month was reported at $829,400, just a few hundred below the forecast price. Not terrible, especially considering how few people thought prices could swing that fast. 

Last month, the SNLR-based forecast also acted as a solid indicator for the benchmark. The 3-month leading trend showed prices would fall to around $822,600 in May. CREA reported the benchmark at $822,900 last month, even closer than the previous forecast. Forecasting has a lot of moving parts and trends can shift dramatically. However, this is close enough that it’s worth paying attention to.

Canadian Real Estate Might See 2022 Gains Disappear By Mid-Summer

The deterioration of the SNLR indicates we’re going to see a fairly substantial drop in price by August. In May, the SNLR indicated a benchmark price of around $771,500 by August. This would be an 8.0% ($67,500) drop from the March 2022 peak. Not enough to be considered a crash or correction, but that takes prices back to November 2021. Absurd gains where prices jumped tens of thousands per month in Q1 would disappear.

Forecasts are based on snapshots of the market at the time of reporting. The variables within can change abruptly, especially when the changes are policy-driven. Make sure when you see forecasts, you understand they apply only if the trend continues to follow. If things get better, price drops can slow or even reverse and start rising. Similarly, if things deteriorate further, more inventory shows up and sales don’t, it can fall faster.

Now you have a baseline expectation to monitor. Keep an eye on these levels and see how expectations evolve — and may the odds be ever in your favor. Whoops. Are we not ready for Hunger Games references yet?

8 Comments

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  • Omar 1 month ago

    Cottage country is already back over $100k, sometimes $200k. I know this is national but people are going to pretend this is impossible when in reality that number might already be here and the composite lags.

    • Sharon Sommerville 1 month ago

      Omar, could you please explain, “Cottage country is already back over $100K”. Do you mean, declined 100K or increased 100K?

      Thanks, Sharon

  • Mortgage Guy 1 month ago

    People are already freaking out and politicians are screaming like homeowners planned on prices rising $50k/month this year, back in 19-dickity-two when they planned their retirement.

    If you just bought and you’re an owner, you won’t sell for 10-or-so years and the dip will be irrelevant in contrast to the gains you’ll make. It’s the agents who bought floors of condos on leverage to sell that are about to get a reckoning.

    • Joe 1 month ago

      Great point that needs to be bolded / highlighted / underlined; if you’re looking to live in your recently purchased property long term, this downturn will not be an issue.

      With that said, I think I’m preaching to the choir posting this comment on this site.

  • Remington 1 month ago

    The houses in my area of Guelph are sitting past 30 days not sold. Which before were selling under a week. It’s getting worse than they’re letting on. So what happened all of a sudden people with families stopped looking for a place to live. Regular people can’tactually afford these prices even 0 % interest rate.
    Most of these buyers were investors with deep pockets and they all stopped because of rates.

  • Yoroshiku 1 month ago

    $67,500 doesn’t seem all that dramatic given how ridiculous the price growth was over the past couple of years.

    • Trader Jim 1 month ago

      $68k is 10% at the national level, so double it for Toronto or Vancouver for beta.

  • Jason Azevedo 1 month ago

    I guess I am a fool for not buying a house last month.

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