Canada

Four of Canada’s Big Banks Note Real Estate Inventory Is Rising Faster Than Sales

Canadian banks have been divided on where the market will head, but they’re all seeing the same thing – inventory rising faster than sales. Four of the Big Six commented on May sales across Canada. All four banks stated the rise in sales last month sounded more impressive than it was. The bigger common concern appeared to be inventory increased faster than sales, which will cool price action later this year.

Royal Bank of Canada (RBC)

RBC focused on low sales volumes, higher listings, and expects downward pressure on prices. Sales bounced higher, but they noted “activity was still 40% to more than 50% below year-ago levels in most major markets.” The increase in May only made up “one-fifth of the drop in March and April in Vancouver and Toronto, and closer to one-quarter in Ottawa. The bank expects “slower immigration” will soften a recovery in sales.

Canada’s largest bank expects the slower sales volume will meet with higher listings, pushing prices lower. The bank notes, “there are early signs demand and supply are decoupling.” New listings and sales had fallen at roughly the same pace in March and April, but listings increased faster in May. They expect this trend to continue, adding “we believe downward price pressure will build in most markets in the coming months.”

Bank of Montreal (BMO)

BMO economists observed the same issues with sales and inventory, but had a slightly different take on prices. In regards to sales they note, “[it’s] easy to post gaudy percentage increases coming off what was effectively a shut-down market in April.” Adding “new listings jumped even faster than sales.” They add it’s “still too early to judge the ultimate impact on prices,” but entertain it’s possible they are flat instead of falling. Although stated flat prices “…would be pretty atypical for such a cyclical sector…”

Scotiabank

Scotiabank was less detailed on their observations, mentioning positive movements for both sales and new listings. They note “both gains were the strongest ever recorded.” However, relative to pre-lockdown February – “sales and listings were down 42% and 36%, respectively.” They specifically highlight three warnings to keep an eye out for: A second wave of the virus, withdrawal of fiscal support and mortgage arrears, and population growth – noting the decline of immigration.

TD Canada Trust (TD)

TD also wasn’t impressed with the sales recovery, and noted the higher volume of sellers returning to market. They note. “ [sales] only retraced about a third of activity lost between February and April, and sales remained at multi-year lows.” Adding that sellers returned “en masse in May, as national new listings climbed at an even greater rate than sales…” They expect buyer expectations can still coast, and squeeze out “gains for at least another few months.” However, they expect the market will cool into the later part of the year, and into 2021.

Markets are notoriously difficult to read when transaction volumes are this low. All four banks note sellers are returning faster than buyers. Just a few weeks ago, some banks were still stating they believed the market wouldn’t be impacted by the pandemic. All Big Six banks are see the market slowing later this year, and forecasts will likely be updated to reflect that. If you’re keeping track, that means there’s only a handful of real estate brokerages are forecasting a positive outlook.

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20 Comments

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  • straw walker 3 months ago

    When your selling in this economy…you have to sell.

    • GTA Landlord 3 months ago

      Simple de-risking should be obvious, but isn’t. If you were negative cap before this market, you see rents falling, and don’t exit, you risk having to sell into a market where other people feeling the same pressure need to dispose.

      After transactions costs and carrying, you might have made no more than a GIC, after such a huge run on condo prices.

  • Vince 3 months ago

    Didn’t TD say they don’t expect triple unemployment to impact the market? haha.

    The day after prices fall, they’ll all issue a statement that says no one saw it coming.

  • Alex 3 months ago

    I don’t think people realize what has just happened… The prices still haven’t recovered from 2017 preview crash, and this one will be much bigger.

    https://toronto.listing.ca/detached-home-price-history.htm

    • Gabriele Di Bernardo 3 months ago

      Yup…this is what you refer to as a Bull Trap where it seems like everything is okay but in reality it’s just setting up for the finally. When the dust settles a lot of people are going to be forced to sell and will lose their homes on account that they’re under water and home prices will plummet.

      • SH 3 months ago

        Actually, I think detached homes will do just fine. It’s the downtown rickety shoebox condos that are in for a major decline in my opinon.

  • Kolf 3 months ago

    Canada have high taxes, low wages, bad weather and horrible debt levels. In what would does all this make it a place “everyone want to live”??? Stop listening to dumb real estate agents, most of which are high school dropouts.

    Put real estate speculator tax on all foreigners, people or corporations having more than one residential real estate under their name. Home prices in Toronto and Vancouver must come down atleast 50% for long term viability of our economy.

  • alvi 3 months ago

    I see the economic nihilists are out in full force, been hearing the same story since 1974. With the help of policy intervention in 2017(after superspike of nearly 30%)and complete shut down in global economy, single detached homes have not regained the old highs.

    PS The world only ends once and those hoping for complete armageddon to buy on the cheap will themselves be wiped out and will be unable to take advantage of this predicted melt down

    • Fight Back 3 months ago

      LOL high school dropout real estate agent spewing non sense again?

      Canadian have lower income, higher taxes and way more land than Americans. What world leading industry does Toronto or Vancouver have? Money laundering? Toronto and Vancouver have the world’s biggest housing bubble. The same housing in nee Jersey costs half as much as in Toronto and its just 30 mins from NYC.

      Admit there is a huge government sponsored bubble, prices coming down wont affect anyone but those real estate speculators that bought too many houses high on greed. Real estate speculators deserve to get wiped out. Homes are not Bitcoin, its a place for people to build a family not some stock you speculate on.

      • ADH 3 months ago

        This. The truth no one will admit to. Toronto GDP per capita is far less than a lot of big cities south of us and we dump housing raw materials there, building 3000 square foot houses for less than $400k yet ours are 3x that 30 min from downtown but now it looks like downtown may not matter so much down the road. How can immigration be the answer to the false economy of housing and money laundering? We don’t even recognize a lot of foreign degrees so the skilled labour argument doesn’t hold up. The net worth details yesterday provided by the PBO should be a real eye-opener about this false economy….

      • Manoj 3 months ago

        You are 100% correct, there are no Fortune 1000 companies headquartered in Toronto and or Vancouver with high paying jobs. ZERO!!

        It is nothing more than huge government sponsored Ponzip scheme fueled by money laundering by the Globalists from across the world to keep the bubble inflated.

        The locals have no idea of the reality, their so called real estate agents who are nothing more than salespeople show you fake graphs and stats to create the house price illusion for the past 40 years in Canada.

        Now the government is bailing out the Subprime borrowers who have been given a free lunch to hang on to their homes at the expense of the hard working savers who get negative interest rates on their savings while the broke risktakers are being rewarded.

      • Visha Patel 3 months ago

        I agree. I think if there was a cap on appreciation which runs along side inflation we wouldn’t have this problem. Properties shouldn’t appreciate yearly more than 2% to 5%. Anything more is clearly not sustainable.

    • SH 3 months ago

      The big banks are economic nihilists, Alvi?

      Funny you mention “government intervention” in 2017 but I bet you don’t mind all the government intervention to prop up the market. The latter outweighs the former a thousand to one.

    • Jill 3 months ago

      Alvi, perhaps you’ve forgotten 2008 sub-prime financial crisis. Armageddon doesn’t need to come for everyone, but it comes for enough to crush markets, both real estate and equities.

      The poster above you is essentially right: immigrants come here for $ and a ‘wealthier’ life, and obviously not for the weather or anything else. Off-shore money has been piling in as a safe haven, often from ill-gotten gains. Money laundering is HUGE in Vancouver and Toronto, and a lot of it is tied to the real estate market.

      It’s true, Canadian disposable incomes are low in comparison to real estate prices. In the largest markets real estate is way out of touch with family incomes. A day of reckoning will come, and COVID and Trudeau mismanagement may well be the triggers.

      • Maine McEachern 3 months ago

        Jill – appreciate your post but this isn’t a “Trudeau” problem. It’s a systemic problem that’s inherent to the corporate dominated 2-party system and to the fundamental economic inequality and inefficiency of the Central Banking Cartel’s “built to fail (for the majority)” inflationary and recessionary fiat usury financial system.

  • No Problem 3 months ago

    Doesn’t matter to me. Medium rise condo, 2,000 sq. ft., no mortgage, great location, I live in it.

  • andrew liang 3 months ago

    Daniel Wong, can you please link to your sources? Thanks

    • JR 3 months ago

      Financial journalist here.

      Links to sources in financial journalism is rare because the reports are sent to outlets as an email before it’s posted on their own sites. There’s nothing to link to when it’s first sent out. If there is something to link to, it isn’t an original insight and usually not worth covering.

      A lot of the time the content is embargoed so there’s discussion around at the same time about an issue. Other times it’s paid content for clients, and isn’t allowed to be released in its entirety.

      • Ethan Wu 3 months ago

        Special relationships also yield different or better resources. For instance the institutional reports have data points from banks and regulators that aren’t available unless individually requested.

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