Canadian Real Estate Supply Surges, Banks See Lower Prices Ahead

Canada is seeing higher interest rates, turning investors away from the market. That’s helping to balance demand. Canadian Real Estate Association (CREA) data reveals national existing home sales fell in September. The drop isn’t particularly noteworthy by itself, but when combined with strong inventory it demands attention. Market conditions are cooling so rapidly that Canada’s biggest banks are even adjusting expectations, and see lower prices ahead.  

Canadian Real Estate Sales Are Still Relatively Normal 

Canadian real estate sales are failing to meet expectations, but they aren’t exactly slow. Seasonally adjusted sales fell 1.9% in September, while unadjusted annual growth came in 1.9% higher. At just over 35k existing home sales, the month is roughly where pre-pandemic volumes were. Nothing like recent expectations, but still a long way from being a “slow” market. 

Canada Has Seen Inventory Rise To The High End of Normal

Inventory is where Canadian real estate gets interesting. Seasonally adjusted new listings climbed 6.3% in September, the sixth month the market has seen an increase. Unadjusted volumes show inventory 14.2% higher than the same month last year. That’s similar to the high-end of pre-pandemic norms, according to BMO senior economist Robert Kavcic. 

“Put another way, the unique period in early-2023 when there was a complete dearth of listings is now over, and we’re seeing much more ample supply,” explains Kavcic.  

Canadian Real Estate Markets Are Rarely Ever This Well Supplied 

Slow sales and a lot more inventory are combining to produce an unusual amount of slack. The sales to new listings ratio (SNLR) fell to 51.4% in September, shedding over 4 points from a month before. That places relative demand at these prices close to perfect balance, though the rapid easing isn’t expected to stop soon. 

Back in the Spring, when the market was heating up, the ratio climbed to 68%—well into a seller’s market. Over the past 10 years, the average monthly SNLR has been 61%, according to the bank. As a result, the market being well supplied is unusual for most. Kavcic suggests this is close to the weakest the market has been in the past decade.   

Canadian Banks Are Lowering Their Price Forecast Due To The Cooling Market 

Earlier this month, TD lowered its expectations for real estate markets based on yields. After the supply surge, BMO also appears to be more cautious about the outlook.  

“All told, more ample listings, restrictive mortgage rates, cautious investor demand and a subdued economic outlook all suggest tough market conditions,” warns Kavcic.
 

Adding, “We believe the risk for prices is another leg lower that runs through around the middle of 2024. There are buyers out there, and there are now plenty of sellers too… but the market needs lower prices to clear under these mortgage rate and qualification settings.” 

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  • Trader Jim 4 months ago

    It’s almost like bond yields climbed above rental yields, eliminating the need for speculators (25% of the market) to try and make up the difference with housing.

    • Jay 3 months ago

      BoC made this mess by suppressing yields with QE. Nobel prizes on what not to do will be written in a decades time on this debacle since it’s a global event. Really makes you wonder if it’s all orchestrated. It’s just too on the nose.

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