The Canadian real estate market is starting to see sellers return, especially in post-lockdown regions. Canadian Real Estate Association (CREA) data shows the sales to new listings ratio (SNLR) fell across Canada in May. The entire drop was due to inventory rising much faster than sales, in regions where the lockdown has been mostly lifted.
Sales To New Listings Ratio (SNLR)
Analyzing sales or listings by itself gives important macroeconomic information. It doesn’t tell anyone a lot about how hot or cold the market is. Instead, you need to compare the number of new listings hitting the market, in contrast to the number of units sold. That’s what the sales to new listings ratio (SNLR) is – the ratio of sales, in contrast to listings.
By using the SNLR, we can get an idea of how quickly inventory is being replenished. The higher the ratio, the more pressure on prices to rise. The lower the ratio, the more pressure on prices to fall. The general rule is between 40 and 60 percent, the market is considered balanced. Above that, prices are expected to rise, and below that they’re expected to fall.
An important exception to this rule is when the ratio is moving quickly. Fast rising ratios tend to push prices higher, even if they’re in a buyer’s market. Fast falling ratios can push prices lower, even in a seller’s market. Where a market is, is equally as important as where a market is heading. At least when you filter for enthusiasm.
The Economy Is Reopening, And Pressure Is Being Relieved Across Canada
Economists expected more inventory as lockdowns lifted, and they were correct. The seasonally adjusted SNLR for Canada fell to 58.8% in May, down 4.5% from the previous month. Generally speaking, economies locked down are seeing more buyers than sellers. Regions with lockdowns lifted, are seeing new listings surge faster than buyers.
Sales To New Listings Ratio
The seasonally adjusted sales to new listings ratio in select Canadian residential real estate markets.
Source: CREA, Better Dwelling.
Southern Ontario Real Estate Leads The Tightening of Inventory
Southern Ontario leads the country in sales accelerating faster than new inventory. Hamilton saw the biggest jump to 81.3% in May, up 20.8% from a month before. Kitchener follows with a SNLR of 76.2%, up 19.4% from the month before. Quebec City is in third with 80.4%, up 17.1% from last year. Worth a mention is Southern Ontario remains one of the most locked down economic regions in Canada.
Sales To New Listings Ratio Change
The monthly percent change in the seasonally adjusted sales to new listings ratio selected Canadian residential real estate markets.
Source: CREA, Better Dwelling.
Real Estate Markets With Looser Restrictions See Inventory Jump
Markets with the most restrictive measures lifted in May are seeing inventory rise. The SNLR for Halifax is the fastest falling at 64.7% in May, down 39.8% from the month before. Montreal’s ratio fell to 62.4%, down 36.4% from a month before. Fraser Valley was in third with 38.8%, down 14.5% from a month before.
Notably absent from either extremes are Toronto and Vancouver, which land in the middle. Toronto’s SNLR increased to 57.9% in May, up 6.5% from a month before. Vancouver’s fell to 40.1%, down 9.6% from a month before. It’s worth a note that Toronto is one of the last economies to reopen, and Vancouver was one of those least impacted.
When the lockdown was across Canada, the SNLRs jumped – even hitting over 100% in some markets. Economists, including four bank economists, are expecting inventory to outstrip buyers as markets reopen. One bank is forecasting the rise in Montreal, is the path major markets will follow. Pre-pandemic, it was arguably the hottest market in Canada, with soaring sales. After the lockdown was lifted, new inventory was almost 3x the amount seen during the lockdown.
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