Told ya’ higher interest rates would lead to more Canadian real estate inventory. Canadian Real Estate Association (CREA) data shows existing-home sales dropped sharply in May. At the same time inventory has been climbing as more owners cash out some of those record gains. Falling sales and higher inventory has driven the market into balanced territory already. However, with more rate hikes in the picture, demand may ease even further.
Canadian Real Estate Sales Fell 8.6%, Back To Pre-Pandemic Levels
Canadian real estate sales have fallen sharply over the past few months. Seasonally adjusted sales dropped to 42,649 units in May, down 8.6% from the previous month. Unadjusted sales were down 21.7% from the same month last year. Canadian home sales are now at pre-pandemic levels and just above the 10-year average.
Canadian Real Estate Is Seeing Fewer Sales, But Much More Inventory
New listings for Canadian homes are hitting the market at a much higher pace, as more people cash in some gains. Seasonally adjusted new listings hit 74,145 in May, up 4.5% from a month before. The unadjusted units came in 6.3% higher, a substantial climb as demand (at these prices) drops. You know how people won’t sell their home when it’s rising $50,000 per month? The opposite trend is starting to emerge.
Canada’s Real Estate Market Is Now Balanced, and May Loosen Further
Falling sales and rising inventory helped to restore balance to the market. The seasonally adjusted sales to new listings ratio (SNLR) fell to 57.5% in May, down 8.2 points from the prior month. The unadjusted SNLR fell 2.1 points from the same time last year, so conditions are easing by all measures. A ratio at this level implies Canada is now a balanced market, believe it or not. That was fast.
What does this mean? The SNLR is used by the real estate industry to measure relative demand for inventory. When the ratio is between 40% and 60%, real estate markets are balanced. Above 60% and the market is a sellers’ market — low inventory and higher prices appear. Below 40% is a buyers’ market where prices fall and inventory becomes plentiful.
At the national level the market is now balanced, but the trend is stacked towards slower sales. Toronto and Vancouver tend to lead the market, and they’ve already begun to see the ratio fall even lower. Most of the falling demand is likely investors, who saw their share of the market surge as rates fell. As rates rise, they’re getting the exuberance knocked out of them, helping to restore balance.
The borrowing and spending binge by Canadian households, businesses, and governments (all levels) continues unabated.
At the end of March, 2022 the total debt outstanding in Canada (bottom line of the Statistics Canada credit market summary data table) was $10.162 trillion. At the end of March, 2021 the total debt outstanding was $9.376 trillion. In the 1 year period from the end of March, 2021 to the end of March, 2022 it increased by $785.8 billion. This is an increase of 8.3%.
Canadian total (household, business, and all levels of government) debt numbers as of the end of March, 2022
https://owecanada.blogspot.com/2022/06/canadian-total-household-business-and_15.html
Investors buy 25% of the homes and 25% of sales drop as soon as interest rates rise? Who would have thought?
The ones in negative cashflow will be the first to fall once the layoffs come and their tenants stop paying.
Timberrrrrr.
Seriously. Lumber prices are falling and it’s glorious.
incoming 75 bps hike in the US too. Things are about to get messy.
It’s not a balanced market. The surge in listings reflect the desperation of those that thought the prices would inflate forever. Soon those listings that recognize that the market has drastically changed will have to decide to lower the asking or pull the listing. Inevitably the market will loose value similarly to the last market cycle (90’s or if nothing bigger takes place). Those that took on unprecedented debt will learn a valuable lesson when they refinance, and be able to offer a valuable lesson to the next generation of uneducated buyers.
That’s literally what a balanced market is.
Will Canada’s speculative housing bubble burst or just deflate like a sad balloon?
Just a small advise to the speculators & investors Get out fast the Tsunami is coming.
loving it.
Homes in good locations and reasonably priced are selling. Those thinking they can cash in on a fixer upper still haven’t got the memo that the unsane market has changed. Quick to raise price very slow to reduce.