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.