Canada

Canadian Real Estate Sales Fell Over 11% In 2018, Biggest Drop Since 2008

Canadian real estate sales cooled last year – by a lot. Canadian Real Estate Association (CREA) numbers show 2018’s sales were the slowest in years. In fact, Canadian home sales made one of the largest declines in a decade. Despite the fact that your Realtor may have shifted to “there’s no national market” mode, there’s going to be an impact.

“Why Do I Care? There’s No National Real Estate Market!”

Realtors love saying there’s no national real estate market, but that couldn’t be further from the truth. CREA, the organization that represents those same Realtors, estimates that every sale generates $64,000 in spin-off economic activity. They also estimate that every 3 home sales results in enough economic activity for one new job. Spin-off activity is typically general household purchases, furniture and appliances, moving costs, renovations, and professional services (financial, legal, real estate, appraisal, etc.). Those professional services represent nearly half of the spin-off dollar value.

Right, but how is this national? Credit liquidity is national, as well as the lenders that issue the majority of mortgages. A rise in home sales means a rise in spin-off activity, creating a stronger economy and easier credit. A decline in home sales does the opposite, shrinking the spin-off activity, and tightening credit. The rise in home sales accompanies the “expansion” of the credit cycle, and the fall accompanies the “contraction” phase. I probably don’t have to tell you what happens to the spin-off activity, and jobs that were created during the contraction. You can read more about the credit cycle and real estate here, but for now let’s just move onto the numbers.

Canadian Real Estate Sales Fell Over 11% In 2018

Canadian real estate sales made a substantial decline last year. CREA preliminary numbers show 458,442 sales in 2018, an 11.1% decline from 2017. Last year’s number is also 2.1% lower than median number of the 10 years prior. Worth noting that these numbers are CREA’s preliminary numbers. Official numbers won’t be announced until February, but the difference is usually in the dozens – not enough to change the trend.

Canadian Real Estate Sales

The unadjusted annual sales for all home types across Canada, as reported through the MLS.

Source: CREA, Better Dwelling.

In terms of the growth trend, this was the biggest decline since the Great Recession. The 11.1% decline in 2018 is on top of a 4.64% decline in 2017. The declines are so far getting larger, and the most recent is the largest since 2008. For those opening a new tab to look up Canada’s last recession, it was in the year that followed the last major drop.

Canadian Real Estate Sales Change

The annual percent chage of unadjusted sales for all home types across Canada, as reported through the MLS.

Source: CREA, Better Dwelling.

Canada’s Economic Spin-Off Activity Contraction

Using CREA economist spin-off activity estimates, we get some interesting estimates on future activity. The drag on economic activity works out to a ~$3.66 billion decline last year, and a loss of ~19,000 jobs. Using a standard capital velocity multiplier, things can get pretty messy, pretty fast. Job losses typically trail the loss of business, often happening in the first year of a recession. That means even though we only saw the economic activity decline, the jobs declines will trail.

Note: Watch for government policy changes to extend credit, which will make things worse. During the Great Recession, Canadian politicians provided even more credit to accommodate non-productive consumption (a.k.a. home buying). The result was the introduction of an inefficiency that led to less-and-less GDP growth for every dollar borrowed. Running a household debt crisis instead of popping a housing bubble would be an interesting one for the textbooks though.

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36 Comments

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  • Ya Lan 4 weeks ago

    Of course we’ll just saddle households with more debt. Don’t want the banks to have to lay anyone off, unless it’s to replace them with foreign call centers. Canada hasn’t been about families since the mid 1980s. Since then, all sides of the spectrum have just been focusing on ways to make their friends money, and pretend it’s good social policy.

    • Ethan Wu 4 weeks ago

      Important distinction: They’re all the same. Government subsidies to build housing and buy land is a scam to transfer tax dollars to developers. Extending mortgage amortizations and easing credit, gift to the banks.

      The government should focus on transferring risk to party holders. There would be no Tim Horton’s employees with $500,000 condos if that was the case. Reward productive investment, not sleazy lobbyists.

      • Mtl_Matt 4 weeks ago

        I hope more people would understand this. “First buyer subsidies” really translate to “existing owner enrichment”. Building social housing increases supply, but these programs only increase demand, and prices which is great for incumbents and people that get a cut of the transaction.

  • Anton Petrov 4 weeks ago

    I’ll pour one out for the lost value of the Canadian dollar. Canada has always been ruled by people appealing to emotionally handicapped voters that freak out when they have to do anything responsible.

    No retirement plan because you bought a house? The government will make a mandatory retirement plan! “Boo, we don’t wanna save more for retirement! That means we have to buy less houses!”

  • Trevor 4 weeks ago

    Pre-liminary estimates?! You folks rock!!!

    BD4L

  • JC 4 weeks ago

    Extending credit and low interests rates has worked for the past decade to prop up the economy and create housing bubble, so why shouldn’t it work out for the next decade? Even though sales have declined, prices still remain high and have made very little movement downwards. It would be wonderful to see a major correction, but that would negatively affect too many cash strapped homeowners and vested interests for the government let the bubble pop..

    • Grizzly Gus 4 weeks ago

      I guess they could come up with a taxpayer funded down payment gift to first time home buyers kind of scheme, but households already maxed out at near 0 interest rates over the past decade. People max out their credit capacity when they think prices will rise. If rates can’t go any lower, there is no “affordability” increase for the next buyer to pay a higher price. As short to mid term price appreciation expectations drop, people will no longer want to max out their available credit…….. they will go back to buying what the can prudently afford.

      So to keep the housing orgy going governments would need to figure out a way to improve “affordability” which can only be done in 1 of 4 ways. 1) Lower interest rates allowing people to carry the same debt load for less, or a larger debt load for the same monthly costs. 2) wages go up allowing households to carry more debt at a given interest rate level. or 3) Monetary gift to help out first time bag holders 4) prices fall

      • Joseph 4 weeks ago

        Grizzly Gus, correct me if I’m wrong; out of those 4 ways you mentioned, ways 1) & 2) are pretty much not options at this point. For way 1), lowrringvthe interest rate any further will crush the economy, equate to cheapened currency as well as everything else that goes with a lagging loonie. Way 2), I just simply don’t see any raises in the future. Simply job cuts, let alone raises.

        Therefore, I’m inclibed to think only ways 3) & 4) are on the table at this point.

        • Grizzly Gus 4 weeks ago

          I don’t think 3 will happen. My point was that there is nothing government can really do to keep this party going.

          • JC 4 weeks ago

            Thanks for the insite. I really do hope you’re right.

    • Trader Jim 4 weeks ago

      I guess Stephen skipped over the monetary consequences that are apparent to professions, but not quite apparent to the general population. You’re thinking it’s a punishment for home owners, because you probably don’t understand how neutral rates work.

      Right now inflation is 2%, and the overnight rate is 1.75%. In the most basic sense, this means the country is giving you 0.25 points for every dollar that you borrow (0.25%). Every dollar borrowed, is every citizen handing over that point of wealth to subsidize the borrowing.

      Why are we printing money? To float overvalued homes. Every dollar sunk into residential housing is one dollar that is not circulating, locked up, and the borrower pays 4% to have it locked up there per year. In effect, even at today’s mortgage rates, you’re looking at paying a bank twice the rate, for the inflated value. Keep in mind, the Bank of Canada said in 2014 housing was overvalued by 20% across the country. Toronto was not, because it was just passing the inflation adjusted high it reached in 1989. It took 20 years to get to the value it was bought at in 1989.

      Now, 20 years of lost capital productivity – not terrible. But that handicapped Canada’s actual, productive growth.

      Don’t worry, I didn’t forget about your house. You bought it, you don’t care. This is everyone else’s problem! Except it’s not, because you’re subsidizing everyone’s home purchase with the evaluation of your currency. Your house is going up in funny money, but your purchasing power is declining.

      But wait, there’s more! As Canada shifts to an import dominant country, since everyone is in soft skills, inflation will rise very quickly. This means we’ll need to raise interest rates, or we’re subsidizing new buyers even more, which makes things even more expensive.

      In case you’re wondering, that’s why actually rich people are sending money away, and foreign companies are hiring our labor. They don’t want capital caught up in the epic situation brewing, but they want the devalued labor. After all, every house the government helps you buy, your labor gets cheaper to them.

      • JC 4 weeks ago

        Wow just a quick thanks for this comment. I am indeed a noob here, and this has given me a lot to think about in terms of the bigger picture. I’m actually waiting to get into the market for the first time, have quite a bit saved up but hoping for the prices to come down. Discovered this site in the last few months.

        • L 4 weeks ago

          JC, if you are looking to buy a house, this website/comments will tell you not to buy for a very long time…I think this website have had a negative outlook on real estate since 2014 or so.

          • Hui Yin L. 4 weeks ago

            The site didn’t exist in 2014. Real estate agents and people too poor to diversify, but too dumb to realize they aren’t rich, say “every bear has been saying this since I went to school and had to walk up the hill both ways.”

            When I heard their analysts speak for the first time, it was in 2017 at the CMHC, and they’d just built the first median credit exhaustion model for institutions. They called the peak for home prices in 2017, which was correct.

            In fact, one question addressed at a talk was “haven’t people been saying Toronto would crash since 2008.” They showed the numbers, and explained that the 1989 peak values in Toronto weren’t achieved on an inflation adjusted basis until 2012, and using monetary ease adjustments wasn’t achieved until 2014. In 2008, Toronto was cheaper than 1989, but people like you aren’t good enough with money to understand that things like this.

            There is no “negative outlook” when it comes to broad asset values. The expand and contract based on monetary excess and contractions. Only fools think you should buy homes repeatedly

            Please stop pretending you know what you’re talking about. I’m surprised they even published your comment.

          • L 4 weeks ago

            Hui Yin must be a strong supporter of these analysts. When did I say that people should be buying homes repeatedly? These data that is published on this website shows one side of the story. If you based everything purely only on data for investments, you might as well get a robot and program it to trade for you.

            Peak for home prices in 2017 is correct only because of Ontario Fair Housing Plan. When prices are gaining 30+% YoY, everyone knows that the peak is coming…lol, you must be a fool to think otherwise. There is no negative outlook in data but there is a bias when choosing what data to present. Positive data are almost never published on this side or rather even when published, are down played.

            Having said all these, this site does provide a good perspective and a place to bring caution to your senses but one should never simply based their investment decision (buying a house in this case) on reading the articles here.

  • Rick Abrams 4 weeks ago

    “Important distinction: They’re all the same. Government subsidies to build housing and buy land is a scam to transfer tax dollars to developers.” Ethan Wu comment #2 above

    This statement is 100% correct, be it in Canada or the US. Right now the FBI is investigating some of the corruption which the Affordable Housing scam has engendered in Los Angeles.

  • Joe 4 weeks ago

    Just when I thought the housing market was going down, I see some recently sold houses (in Toronto proper) at pretty astonishing prices. I guess people like to catch the falling knife.

    • Mortgage Guy 4 weeks ago

      Really? Because I’m seeing flippers terminating listings at a 5% annual increase, because of a lack of bids. Keep in mind officially, condo prices are up 11% from last year, they should be able to sell them easily. 🙄

      • glenn kings 4 weeks ago

        Vancouver has two years of Condos’ that were Pre-Sold. Many still don’t have shovels in the ground and those values are tanking. Investors own most of the Property and considering most of it is underwater as of today, I expect those investors to walk away once their down payment is gone. Did Toronto go crazy on the Re-seller market? Much of the money in the Vancouver markets isn’t even Canadian.

  • Mark 4 weeks ago

    The Toronto detached market has ground to a halt.
    Home are relisting in 2019 after not selling in 2018 and 2017(post May).

    Nobody wants to take a 1 -2 million mortgage because:
    1. They can’t
    2. They are not motivated to lie and cheat to get one because there is no money to be made.

    The market is like a boxer just waiting to get knocked out.
    Potential knock-punch:
    1. The effect of interest rate hikes. 12-18 month delay before they are felt.
    2. Canadian recession. We may already be in one.
    3. Banks tightening credit as credit quality decreases.
    4. U.S -China trade dispute: today Wilber Ross said they are;”miles and miles away”.
    5. China credit bubble burst
    6. China -Canada conflict were they prohibit Canadian investments
    7. Trump Impeachment
    8. Home owners with revolving 12% loans giving up and claiming bankruptcy
    9. CRA auditing flippers and assessing backs taxes and penalties. I personally know 4 people dealing with this now. It will wipe them out and force them to unload their investment properties.
    10. Supply bulge, so far in 2019 supply is ballooning.

    The detached 905 regions is showing 8+ months of inventory on average.

    People who are paying anything more than 80% of asking prices are getting hosed by their realtor. There are NO OTHER BUYERS…GO LOW and wait.

    Also there are 50,000 realtors in TREB and 77,000 sales.

    77,000/50,000 = 1.54 sales each x $787,000 x 0.035% commission = $42,400 less expenses = $32,000.

    • Joe 4 weeks ago

      I agree with all the points you make Mark. But it really confuses me when I see houses in East York/Riverdale/Bloor Street West Village/Humewood going over asking. Granted that the listing price might be artificially low but the actual sold price does seems pretty insane to me given all that is happening now. (Well unless these are fake sales data put in by realtors). Who are these people buying?? I definitely won’t be going in at this time…

    • SUMSKILLZ 4 weeks ago

      If I listed my 905 area detached home for 33% below April 2017 peak price, I reckon it still would not sell. Much nicer homes, currently listed, are not selling…priced 25% below peak prices.

      It will be interesting to see if the mood changes in the spring. I expect gridlock whereby sellers and buyers each refuse to sign on the dotted line out of profound disappointment with the figures listed on the offers. How long that goes on, who knows? 6 months? 18 months? longer?

    • Rana 4 weeks ago

      R u serious 12%revolving loan ?

  • Joe 4 weeks ago

    Not sure about flippers but these are some the properties I thought sold recently at a pretty high price given this market condition. Obviously, there are tons of unsold properties that terminate/sit on the market but I am surprised that these sold for so high.

    MLS #/Address:

    C4332536/188 Arlington Ave
    W4338090/483 Windermere Ave
    E4335944/200 Woodmount Ave
    E4339466/92 Corley Ave
    E4330343/408 Rhodes Ave
    E4336354/386 Coxwell Ave

    • george 4 weeks ago

      total noob question…can the realtors in toronto post fake sales to manipulate data? I have seen same houses in vancouver sold in one year 3 times but that was also when the market was hot…

      • Joe 4 weeks ago

        I saw one before; 104 Fallingbrook Rd, Scarborough; it was posted as having sold for $1 but the sold price was corrected to $2.98m a few days after. It happened when TREB lost it’s appeal and was ordered to make sold data public so it might be a retaliation by the realtor.

        Before the sold price was corrected, there was an article published to warn realtors not to post fake sold data. Not sure if anyone remembered it.

  • george 4 weeks ago

    just googled and found this 4 months article…hahaha….they can do it and they are ‘reminded’ not do that…this is such a fucking joke

    https://betterdwelling.com/toronto-real-estate-board-reminds-agents-they-shouldnt-give-fake-sold-info/

    Not saying these houses were actual fake sales but to me it raises suspicion if they were sold at crazy prices

  • ccc 4 weeks ago

    Calgary is locale

    Calgary home sales hit lows not seen in over 20 years, according to realtor

    https://www.cbc.ca/news/canada/calgary/calgary-housing-market-2019-1.4964233

  • Mark 4 weeks ago

    In the areas really close to downtown and in the 1.0-1.5M I agree that prices are sticky.

    Here are some interesting examples. I have no clue what they are up to.

    44 Southwell Dr, North York
    For sale 2019-01-15 $1,999,888
    Delisted 2018-11-12 $2,899,000
    Delisted 2018-08-16 $2,999,800
    Delisted 2018-04-18 $3,288,000
    Delisted 2018-03-26 $3,300,000
    Delisted 2018-02-28 $3,300,000
    Delisted 2018-01-18 $3,499,000
    Delisted 2017-11-20 $3,699,000
    Delisted 2017-11-08 $3,799,000
    Delisted 2017-10-17 $3,998,000
    Delisted 2017-09-12 $3,998,000
    Delisted 2017-07-12 $4,099,000

    137 Burbank Dr, North York
    For sale 2019-01-09 $1,999,900
    Delisted 2018-07-18 $2,780,000
    Sold 2017-04-25 $3,355,000

    19 Mcphillips Ave, Markham
    For sale 2019-01-23 $1,488,000
    Delisted 2018-10-04 $1,599,800
    Delisted 2018-04-15 $1,880,800
    Delisted 2018-01-15 $1,998,800
    Delisted 2017-05-16 $2,488,000

    • george 4 weeks ago

      How are you able to get this information with historical sales/delisting?

      Is there a website with special access or the info is publicly available?

      Thanks Mark!

    • Joe 4 weeks ago

      Spot on Mark. Houses in the 2m range and up are taking a huge beating and more specifically, North York! It’s shocking to see how much some houses have dropped since the peak. George, housesigma does show listing history/sold history thanks to TREB losing the case to keep home sold prices private! :p

  • Joe 4 weeks ago

    Yes, it’s definitely bad in the 905 region. The 905 have gained so much (in price) when the markets were crazy a couple of years back. The 416 region (at least for SFH) seems to be weathering it much better in terms of prices compared to the 905 though sales are way down.

    I feel like condos have appreciated so much so that the gap between SFH and condos are narrowing in the 416. This might put a small upward pressure or at least hold prices steady for SFH this year unless we enter a huge recession (quite likely given all that we are seeing) then all will go down to the drain. Keeping my fingers crossed since I’m a home owner! :s

  • Cat 4 weeks ago

    (Bungol)is good as Well.

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