Canadian real estate markets continued to cool across the country. Canadian Real Estate Association (CREA) numbers show the sales to new listing ratio dropped in every major market west of Ottawa. That’s right, only four markets saw improvements last month.
Sales To New Listings (SNLR)
The sales to new listings ratio (SNLR) is the indicator CREA uses to come up with those buyer’s or seller’s market labels. When the ratio is between 40 to 60 percent, the market is balanced. When the ratio is above 60, it’s considered a seller’s market. That’s when sellers get to call the shots, demanding higher prices or concessions from buyers. When the ratio is below 40, it’s considered a buyer’s market. That’s when a buyer gets make demands like lower prices. It’s pretty straightforward, but there’s some things you should keep in mine.
The biggest thing to note is the labels don’t apply to fast moving markets. If the SNLR is making a fast decline from a high ratio, it could just be passing through balanced territory. The result is it would feel like a buyer’s market, even though it reads seller’s. Same with the a fast rising buyer’s market, which could feel like a seller’s market. Like with most indicators, you shouldn’t depend on a single data point. Instead, let it be your starting point for market research.
Every Major Market West of Ottawa Is Lower
The SNLR only increases in four markets, and none are west of Ottawa. Montreal’s SNLR rose to 66.4 in June, up 12.16% from last year. Halifax rose to 61.4, a 10.23% increase. Ottawa’s ratio increased to 67, a 10.02% increase. Quebec City hit 51.5, less than a percent higher than last year. These markets are improving, but none of them are anywhere close to last year’s hot markets.
Sales To New Listings Ratio – June 2018
The sales to new listings ratio in Canadian markets with more than 500 sales in May.
Source: CREA, Better Dwelling.
Southern Ontario Is Home To The Biggest Declines
The fastest falling ratios are in the “Golden Horseshoe” region of Southern Ontario. The Niagara region had a SNLR of 61.4 in June, down 25.93% from last year. Toronto had the second biggest decline with an SNLR of 48, down 24.53%. Hamilton came in at 61.5, a 20.44% decline from last year. All of these markets are in the same economic region, which could compound issues.
Sales To New Listings Ratio Change
The percent change of sales to new listings ratio in Canadian markets with more than 500 sales in May.
Source: CREA, Better Dwelling.
Local policy measures are likely playing a smaller role than people think. Yes, non-resident and anti-speculation taxes have deterred buyers in a few markets. A national slowdown however, means a things like higher interest rates may be taking its toll. Rates have only made a mild move higher, and they’ve already shaved off up to 6% of buying power from last year. That’s a big change from two years ago, when rates were stagnant for seven years.
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It would seem to me that these figures indicate a return to balanced markets, not a buyers’ market.
In a balanced market, prices would be stable, or possibly some minor movement higher.
A balanced market for a decade would be very good for the economy.
The danger, however, is that there is a general unrest in the population that things are not growing as fast as they had been lead to expect since the 80’s.
It is happening in America – the general population would rather loose everything, and then become a bit richer, then hold on to what they have, but not get any richer. That is, people would rather be poor, but getting richer, than rich, but not getting any richer.
So will the populace be content with stable housing prices for decades, instead of a crash, or will they get extremely upset that their investment is not gaining, and therefore a crash would be more psychologically satisfying in the end?
You don’t catch falling knives.
But when they hit the floor, it is so nice to pick them up.
How true, a truly disturbing characteristic of underlying human nature.
I think humans are more adverse to loses than they are to missed gains. IE people will not sell for 5-10% less than they paid (unless they are forced to) provided the market does not look like it is on the edge of the abyss. This will come down to how much bad debt (and fraud) is out there. If not to many people get liquidated (have to hold on through at least one recession too) prices could stay somewhat flat.
For the record, I think we have seen enough evidence of bad debt already to assume that the problem is systemic and that the rivers will run red. Home Cap, LB, Fortress, money launderers, those homeowners from Oakville, etc.
Think you’re right, which would explain why prices are sticky going down. Seems that it’s usually only a few rats intent on self-destruction, and don’t have a shred of guilt about the collateral damage.
People now are saying over my dead body about selling below expectations, but if that’s what it takes … have a good afterlife.
But will they hold on til the end of the ride. and then when they gain back just a tiny fraction of what they lost, feel really, really good about winning again?
Think about compulsive gambling. One small win makes up for all the loss.
Justin, out GDP relies a lot on Real estate. Read again my statement and think about the title of this article. 😁
Meant Our lol. Canadian GDP
“The myth of a national real estate market”
In other news, all real estate markets are acting the same across the second largest country in the world. 😂
We’ve never had such a huge period of monetary expansion. We’ve entered the “everything bubble.” When you can no longer find any detached home in Ontario for less than $500k, it’s not s local issue. Someone poisoned the monetary well to stimulate demand.
Bang on. Money supply has exploded higher creating a grand illusion of wealth. Hangover will now be brutal for all who drank the ‘richer than u think’ bs tea.
The bars in the first chart are the grasping fingers around the throat of Cdn. RE, curling up, slipping away. The market is starting to breathe, soon it will be taking in huge gulps of air.
The patient is on the road to recovery, the evil weeds are withering.
The second chart looks Iike it’s got three fingers to squeeze before real estate goes limp across the country.
Sure does. Or perhaps more catastrophically, the last 3 fingers desperately hanging onto the cliff edge!
4002 Taffey Crescent in Mississauga. I lived on the street growing up. Nice middle-class neighbourhood near schools and parks, older subdivision but still the small lots and not even that large in general(smaller than newer areas like Meadowvale for example). Larger house. This was a feeder home that after 10-15 years you move up to one of the shiny double car garage houses on sawmill valley road. It has 4BR 2.5 bath (actually less because the other bathroom is just a shower not a true 3 piece). My parents sold approx 10 years ago with a value of approx $350K. It is now listed for $810K. I don’t need to do the math to understand that is a shit ton of appreciation so the question is: What changed in Southern Ontario but really this little pocket to warrant almost 250% increase in 10 years (I’d assume the price delta accelerated in the last 24 months but don’t have the numbers)…think about it. Typical house appreciation is 1-3%; inflation more or less. Shocker…it can ever go down! What were the factors driving the price appreciation? What has changed in the last 6 -12 months? What can we reasonably predict over the course of the next 6-24 months? Live in the light. Don’t spread filth. BD4L.
150% increase…
My guess:
1) Currency devaluation of Canadian dollar makes it attractive to foreign investors in the last 5 years.
2) Immigration, increase demand for space, in that area, you still can get decent house/land relative to income (family income of around 130k-180k).
3) Saturation of the Toronto downtown core; as it gets more crowded downtown, people who value green space/land/serenity move outwards to more affordable neighborhoods.
4) Commute isn’t that bad; lots of my friends live in Mississauga and commute via Go Train downtown just fine. Takes about an hour fifteen mins to get home.
5) Area is self-sufficient; lots of food/groceries options that doesn’t require you to travel too far.
6) Demographics/community; many Chinese immigrants choose Richmond Hill/Markham so Mississauga is not as saturated by Chinese immigrants as those areas.
7) Safer than Scarborough. 🙂
1) Currency devaluation of Canadian dollar makes it attractive to foreign investors in the last 5 years. – It isn’t in the $0.65 range; last 3 years which have seen the highest appreciation in housing have been in the mid to high 70. An investor may save on the FX but the margin is eroded with other costs.
2) Immigration, increase demand for space, in that area, you still can get decent house/land relative to income (family income of around 130k-180k). – immigration as a % of pop is trending down. Prices don’t go strospheric because of a slight uptick. Your comment re: HHI is comical.
3) Saturation of the Toronto downtown core; as it gets more crowded downtown, people who value green space/land/serenity move outwards to more affordable neighborhoods. – this is a narrative from the 60s which caused the boom of migration to the suburbs.
4) Commute isn’t that bad; lots of my friends live in Mississauga and commute via Go Train downtown just fine. Takes about an hour fifteen mins to get home. – GO train service along the lakeshore line was a joke even 5 years ago. Commute times have gotten worse.
5) Area is self-sufficient; lots of food/groceries options that doesn’t require you to travel too far. – so are most areas within SO. Not sure of your point.
6) Demographics/community; many Chinese immigrants choose Richmond Hill/Markham so Mississauga is not as saturated by Chinese immigrants as those areas. – Huh? So Erin Mills exploded because of a lack of chinese migration?
7) Safer than Scarborough. 🙂 I lived in Mississauga; you don’t know what you’re talking about my friend. The suburbs have hordes of roaming teenagers looking for shit to do/break/fight/eat/fuck/drink/smoke…things have changed I hope!
well Joe, let’s see where we are in 6 months. Tick tock. BD4L.
You grew up on Taffey Crescent in Mississauga? Hell, I probably taught you. Lorne Park?
Money supply expanded faster. Welcome deflation to your neighbourhood.
Sorry but what family makes 130-180K .I’ve been working in HR block office part time on and off around tax season since 2009…The ppl who can afford our services are middle class…I would say average household income at around 80-85K…We do around 3000 tax returns every season so I have a pretty good idea…There are people who make above100K but usually the wife doesn’t work and stay with the kids home so that 100K is for the household …
Malina, usually people living in a 4 bedroom house is probably more advance in their careers (say 10-15 years of work experience)? I assume a family of 4 (2 parents and 2 kids) would want a 4 bedroom house.
With 15 years of experience, I doubt it’s tough for one to get 75k gross annual income so a couple makes 150k?
I dont think people making 150k/year would use anyone except a CPA to do their taxes, and more likely the CPA who also holds the bulk of their investments.
Not to knock you because you could be just as qualified. But HR Block is like the No Frills of tax returns. I simply just wouldn’t waste my money on it. Studio Tax does a fine job for basic returns.
Most people have to pay tax man, so the 75 is 50, back to $100000, not that many people make that much money –
Yeah, 100k net family income for a 650k mortgage on a 800k house is still reasonable (assuming they have 150k saved up on down payment).
Eight times annual income? It would be beyond foolish for any family to put their entire nest egg into a single, illiquid asset like that. And no, real estate does not always go up. Blue’s post pointed just how little price appreciation has to do with economic realities. Of course this is a bubble, of course it will pop, and when that happens, so many families will be ruined by advice like yours.
Not asking people to buy a house to speculate but if a family wants a place to live, buying a place 8 times their income isn’t foolish. Bubble bubble bubble, everyone is saying that but families still need a place to live. If you buy a place now and it drops 20% next year but you are going to live in that place for 30 years, does it really matter? You can say it’s foolish and you should have bought it when it crashed and not now…but give your advice a few years ago and it would have cause families to not ever have a chance to own a house.
Real estate doesn’t go up every year but I believe it will become less affordable as the years go. Is it the best place to put your money now? Maybe not, maybe yes. But owning a place you can call home instead of renting your whole life feels good and it’s what some people want. Crash or no crash, things are only going to become less affordable. For all people who thinks like Meena that I am giving advice to buy now, please don’t! Do your research, ask yourself what you want and if you can weather downturns with a mortgage of that size.
The issue is, if prices plummet, a lot of people lose a huge amount of leveraged money.