Canadian real estate sales continued to slump, any way you cut the numbers. Canadian Real Estate Association (CREA) numbers show May sales, usually the peak of the year, are significantly lower than last year. In fact, it was some the worst May numbers for Canada over the past decade.
Seasonally Adjusted Versus Non-Seasonally Adjusted
If you already know the difference, skip this. For those that don’t, seasonal adjustments remove the seasonal swings from data sets. Economists generally prefer the adjustment, to help decipher month-over-month performance. For example, few real estate sales happen in winter, and more in the spring. Seasonal adjustments tend to lower the spring sales numbers, and inflate winter as “an adjustment.” The result is a nice and pretty lines on chart, using a timeline of numbers that didn’t happen.
The usefulness of seasonal adjustments are often questioned, especially in the US. I once heard a Wall Street analyst ask “how is it useful to compare two fictional numbers?” Analysts that hate seasonal adjustments, will prefer unadjusted year-over-year changes. Today we’ll be going over both, just for the sake of completeness.
Canadian Real Estate Sales Are Down Over 15% When Seasonally Adjusted
Let’s start with the industry’s seasonally adjusted numbers. CREA reported 36,373 adjusted sales across Canada, a 0.1% decline from the previous month. This represents an annual decline of -15.03% compared to the same month last year. This is the worst adjusted month since December 2012, and the worst seasonally adjusted May in over 10 years.
Canadian Real Estate Sales
The total number of monthly sales that passed through the MLS, both unadjusted and seasonally adjusted.
Source: CREA, Better Dwelling.
Canadian Real Estate Sales Are Down Over 16% When Not Adjusted
Unadjusted, we see sales made a slightly larger deline. CREA numbers show 50,640 unadjusted sales across Canada in May. The annual decline works out to 16.42%, making it the largest annual decline for a May since 2008. This is the second year we’ve seen May’s peak sales decline, potentially indicating sales are in a downtrend. When not using the industry’s seasonally adjusted numbers, it’s the worst May since 2011. Still not great, but better than not even being able to even find a May with worse sales.
Canadian Real Estate Sales Annual Change
The annual percent change of real estate sales, both unadjusted and seasonally adjusted.
Source: CREA, Better Dwelling.
Anyway you cut it, we’re seeing sales across the country decline. Higher interest rates and stress tests poured a bucket of cold water on over enthusiastic buyers, although lenders that cater to subprime loans are still seeing brisk business. We’ll be breaking down sales region by region later this week.
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For once seasonal adjustments made the trend look worse. I wonder how long for the industry to start using unadjusted numbers. lol
Always thought seasonal adjustments were just a way of keeping the public from overreacting at small changes.
Sales are down 30% in the GTA. 16%, so where is padding performance? Montreal is my guess.
After 200k people buying resales, and another 100k buying new construction, we’re running out of people that *want* to buy more than fundamentals warrant. These refugees that are pouring in are going to love $2,000/month rent in Toronto and Vancouver. If they land a job at $15/hr, they get the pleasure of paying 77% of their income on rent. 23% is enough for taxes, food, transportation, etc, right?
Canada’s immigration ponzi is over.
Most of the international students I went to school with, decided to go back to China. Can you blame them? First year I remember them telling me they wanted to find a way to stay in Canada. By year four, they finally got that the “opportunity” here is greatly exaggerated.
Meh.
http://www.scmp.com/comment/insight-opinion/hong-kong/article/2150836/call-canada-why-hongkongers-are-leaving-second
People in HK actually have money. They will help support real estate prices.
Mahmud, you are understanding it wrong because we are detached from fundamentals for a while now. Demand from investors can be pretty much infinite and it’s added to sales data from valid homebuyers.
What’s happening right now is that demand from valid homebuyers is decreasing due to rising rates and B-20 and at the same time demand from investors is declining as well because returns are not so great anymore and government severely intervene in RE market which is additional risk for them.
This trend will be here for a while because we are not done with interest rate hikes path.
Thanks for the common sense Xelan. World sorely needs this now. BD4L.
Thank you for going over both numbers, most “reporters” probably don’t know the difference. I hear the seasonally adjusted numbers almost exclusively, because complicated things are better in the MSM’s mind.
Did we just receive a positive spin from BD? Hell must have froze over.
Not really a positive spin, but points out the industry’s fictional positive weighting can work against them as well.
Positive spins are for number jockeys, politicians, the media and peoples moms…the worst may in 10 years doesn’t need any spin. Looks like a shit tsunami…
July will come, and then October
Mortgage, mortgages must rolling over
1 more, 2 more, 3 more up
See next year’s rise, will you be fucked?
They all pile in to knock BD
Looking for their trough you see
Any sort of hope is wanton
Is this what we really wanted?
Pigs and possums…that’s all that’s left
So stressed at tests, they try their best
Borrow one, borrow two, no more you see
‘Nuff fear for you, Duff beer for me
BD4L.
Ha, nice one, Blue. Totally unexpected:)
A lot of wise commentators stated that sales would slow once May came and pre-approvals ran out and stress test was in full effect, guess what ? your 100% right!
Go on give yourself a little pat, guys your definitely on point.
http://business.financialpost.com/real-estate/mortgages/mortgage-growth-in-canada-hasnt-been-this-weak-since-2001
Some are even declaring a buyers market! who knew? 99% of people on BD ….
https://globalnews.ca/news/4279299/its-a-buyers-market-edmonton-real-estate-association/
Still early way too early. All that was pushed out was the dumb/naive/greaterfool/unfortunate/FOMO money but there is still a lot of bad money via community lending and all the ‘geniuses’ who made a killing and then bought over-inflated assets with some cash on the side. Same genius who says he’ll just run neg until the asset appreciation orgy comes back next spring. Same genius who, next fall, will be selling his house at a sticker loss potentially AND will have propped it up to the tune of tens of thousands of dollar amplifying the losses. Then there is closing costs and lawyers. Tick tock. BD4L.
RE Investors, here is the analysis for you produced by Canada’s government:
http://www.pbo-dpb.gc.ca/web/default/files/Documents/Reports/2017/Household%20Formation%20Update%20May%202017/Household%20Formation%20Update%20May%202017_EN.pdf
Check page 13, Figure 4-3
to get insight on future rate hike path
Check page 14, Figure 4-4
to get insight on RE prices projection
While those are Canada-wide numbers the fact is solid that 2019 year will be worse than 2018.
So if you think RE market will rebound nicely this autumn – government of Canada would not agree with you or this rebound will be not sustainable and very short lived.
Also take a look at price growth projection for 2020-2021 and this is a very optimistic picture of your investment growth.
If they miss their projection in 2018 and 2019 and prices go negative the whole 2020-2021 rebound will be seriously challenged.
‘LL
Wow did we just become a third world country, remember we have fire codes.
Sorry but your a f***en idiot.
I will start by saying that, like most others here, I come to this blog to know the facts surrounding the housing industry in Canada, however, I do think that there’s merit in a healthy amount of anecdotal “evidence” as well.
So with that said, I was talking to my brother-in-law yesterday. He lives in Don Mills and said that his neighbour asked if he knew anyone who wanted to buy his house. It’s a $2 million McMansion imposing on a street of post-war bungalows. This neighbour is a real estate agent who confided that he made $150k last year (his wife doesn’t work), and that he has a – wait for it – $1.6 million dollar mortgage on the McMansion. He also has – wait for it – 4 other houses, which he rents out, each either breaking even or at a loss (which makes sense for tax purposes). I think we can infer that he has mortgages on the other places as well, given that he isn’t turning a profit. Obviously, this could be anomaly but I suspect it isn’t, which absolutely blows my mind. Anyone who doesn’t see an issue with a $150k income (a commission-based income, at that), carrying $1.6 million+ in debt is a mad person.
I just thought I’d share.
Yikes that’s a lot of eggs all in one basket!
… Indeed it is… especially when you consider that his job is tied to real estate as well.
That strategy hold enough risk without having your job also tied into it!
‘LL
You paint a pretty bleak future sounds like we are heading for a recession, the middle class drive’s the economy.
Peeps I’ll try to remember to post this tomorrow and the next. Noticed someone trying to do a scam and confronted them via my agent (who was able to get the inside scoop, made them feel like geniuses and then gave me the dirt…number jockeys are so dumb!). I assume once this catches on it will explode until someone cracks down or the market gets savvy. What am I blathering about?…occupied properties with unicorn monthly rents. We know people overpaid. We know people need to sell. How can I sell something that makes no financial sense in an environment of increasing rates and higher lending standards? Sell it occupied with an A+ tenant paying some monthly that, shocker, makes overpaying for the underlying asset a smart (relative) play. In fact, you may be CF +ve by $200-500….well, here’s what I scratched and found in one case but I have to assume there are more BUT could be an anomaly. the tenant is a relative or connected to the seller and they leave basically within 30 days of the new owner assuming possession; then the new owner realizes NO ONE can afford the rent required for +ve carry. Under our laws, a lease becomes month to month after a year or can be month-to-month from inception. The tenant can leave after paying the last month. If this is $5000, with prices dropping monthly in fringe markets, unloading a bubbly asset and only suffer a $5K scam loss is probably where some markets are headed. How did we uncover this? Smelt really funny so my agent told the other agent I need a new 1 year lease signed prior to me taking possession (a lease is against the property not the owner if the ownership is transferred…people don’t know this)…it went back and forth for a day and basically the other agent admitted the tenant is month-to-month and has no intention of signing anything…told the guy that sounds like a scam and make a RECO complaint….if you know anyone about to make a bad decision based on ‘A++ guaranteed rent’ that seems to good to be true, it probably is…BD4L.
Oh it just dawned on me what the fallout could be; tighter lending. Banks will just tell everyone that rental income will not be counted in any way. It is as simple as that. Banks don’t want over inflated assets and potential default on their books that they then have to pay to liquidate…much easier to just cut out the fraud risk. This is tin foil hat to the tenth degree but as we’ve seen banks will take unilateral steps to reduce risk in this environment.
Wow. Very interesting discovery/ theory. Desperation/greed does bring out the best in people doesn’t it.
I’m reagrds to banks de risking themselves via tighter lending. Here is an interesting article about big banks slowing their lending vs shadow banks expanding in the US. Looks like the big fish are only cherry picking the best and safest borrowers at this stage in their cycle. Yes similar to what BD posted the other day only they do not have a B20 equivalent.
http://www.investmentwatchblog.com/next-mortgage-default-tsunami-isnt-going-to-drown-big-banks-but-shadow-banks/
Yeah Grizz, I read the shadow banking article this morning… Funny how the US shadow banking is anything from that… Well Fargo, lol.Canada is so screwed….in terms of the scam, yeah one example means diddly, I’m going fishing over the next week and I want to catch a few more. Will report if it comes to fruition… BD4L.
Fraud on the way in, fraud on the way out
Right when you think we’ve managed every last scam surrounding real estate in this country, another one pops up. The extent to which greed is rampant in RE is amazing. It makes otherwise lawful people do some very sketchy things.
What happened to the real estate agency that was supposed to declare bankruptcy yesterday? Did happen?
Yes it did.
https://www.thestar.com/business/real_estate/2018/06/15/online-brokerage-theredpin-closes-its-doors.html
No valid predictions until June numbers are in.
Historically, June has had a higher number than May, on a few occasions.
If June 1918 is down from May, THAT would be very good evidence, sufficient for predictions.