Canadian housing is cooling very fast, something few would believe a few months ago. Canadian Real Estate Association (CREA) data shows the national sales to new listings ratio (SNLR) fell in June. The measure, a proxy for demand, shows buyers are dropping out of the market faster than sellers. Most markets are now displaying this trend, which generally cools prices as well. Two markets are now even in balanced territory, something Canada hasn’t seen for a few months.
Sales To New Listings Ratio (SNLR)
The sales to new listings ratio (SNLR) is a measure of absorption, helping to give a read on market conditions. Higher ratios mean inventory is low compared to sales, placing pressure on prices to rise. Lower ratios mean inventory will accumulate, placing pressure on prices to fall. What’s high inventory, and what’s low inventory though?
There are some general guidelines the industry likes to use. If the SNLR rises above 60 percent, the market is a “sellers’ market,” considered low inventory. When the ratio falls below 40 percent, the market is a “buyers’ market” where inventory accumulates. between the two is a “balanced market” where prices are perfect for the level of demand and don’t need to move.
One thing to keep in mind is stability and velocity. For a market to respond as people expect, the ratio needs to settle in the range. A fast-rising ratio can see a market behave like a sellers’ market, even though it’s below 40 percent. Similarly, a fast-falling ratio can act like a buyers’ market, even if it’s above 60 percent. This isn’t a definitive indicator but should be one of the many you use to form an opinion on where the market is going.
Most Canadian Real Estate Markets Are Seeing the SNLR Fall
Canadian real estate is generally seeing market conditions loosen very fast. The seasonally adjusted national SNLR fell to 69.2 percent in June, down 5.9 points from a month before. Considering this ratio was 90.9 percent in January, it’s falling faster than most assumed it would. The ratio is still high, but with this kind of drop, it can flip in just a few months. Three-quarters of major markets experienced a drop in the SNLR.
The quick drop is finally bringing the market back into the stratosphere. Ottawa and Edmonton are the first two markets to fall back into the balanced range of SNLR. Ottawa’s ratio reached 59.9 percent in June, down 10.7 points from a month before. In Edmonton, it fell to 58.6 percent, down 7.6 points over the same period. Those might be the only two balanced markets in a while, but they’re likely to have some company soon. But first, let’s talk about the markets that are booming.
Quebec Real Estate Bucks The Trend, and Sees SNLRs Soar
Real estate in Quebec had been lagging the rest of the country, but is now heating up. All three major markets to see the fastest rise in SNLR were located in the province. Quebec City had the sharpest increase in the country with an SNLR of 98.1 percent, up 26.7 points from a month before. Trois Rivières came in second at 88.5 percent, up 14.6 points over the same period. Saguenay was third with its SNLR at 93.8 percent, up 9.6 points from a month before.
Canadian Real Estate SNLR By Region
The sales to new listings ratio (SNLR) for major Canadian real estate markets.
Source: CREA; Better Dwelling.
Most of Quebec’s real estate markets have been performing modestly, and didn’t see a pandemic boom. It’ll be interesting to see if these markets follow the path of “flattening,” like much of the rest of Canada. Though these are all very small markets compared to big cities, so fast changes happen often.
Halifax Is The Fastest Cooling Real Estate Market
The fastest falling ratios were recently pandemic favorites, but are unwinding with reopenings. Halifax was hit with the sharpest decline with the SNLR falling to 61.2 percent, down 44.3 points from a month before. Sudbury fell to 74.7 percent, down 16.1 points over the same period. Thunder Bay was in third with an SNLR of 83.9 percent, down 16.1 points from a month before.
Two of those markets still have very high ratios. Sudbury and Thunder Bay still have very low inventory. However, an abrupt shift like this typically means market perception is changing. Sudbury’s decline was due to a sharp drop in sales, and Thunder Bay was due to an increase in sellers. Halifax got the one-two, with a sharp drop in sales and new listings rising almost 50% in a month.
Canadian Real Estate SNLR Change
The seasonally adjusted monthly point change in the sales to new listings ratio (SNLR) for major Canadian real estate markets.
Source: CREA; Better Dwelling.
Toronto Real Estate Has One of The Lowest SNLRs In Canada
Greater Toronto is one of the lower ratios in the country. The SNLR fell to 63.9 percent in June, down 4.6 points from a month before. It was the sixth-lowest SNLR for a major market in the country. Four-fifths of markets have higher ratios. We’ve talked about Toronto’s SNLR more in-depth earlier this month, since it tends to lead.
Hamilton, the city just down the expressway from Toronto, is losing steam fast. The ratio fell to 71.6 percent in June, down 11.5 points from a month before. The market is the sixth fastest falling ratio in the country, and half of markets have higher ratios. IMF data shows the city has the biggest overvaluation of any market.
Vancouver Had The Third Lowest SNLR For Canadian Real Estate Markets
Greater Vancouver real estate had the third-lowest ratio in the country. The SNLR for the region fell to 60.3 percent in June, and is just a hair away from being in the balanced market range. We took a deeper dive into Vancouver’s SNLR earlier this month, since it’s also considered a market leader.
Fraser Valley, the board that borders Greater Vancouver, is seeing a much faster drop in the SNLR. The ratio fell to 71.4 percent in June, down 12.0 points from a month before. It was the fourth-fastest falling ratio, and over half of markets are now higher. While 71.4 percent is still very high, the abrupt shift is worth keeping an eye on.
Canadian real estate markets are seeing a very dramatic shift from just a few months ago. It went from a scorching hot market to one where buyers are dropping out faster than sellers. Whether it’s just a lull or a more permanent shift in the market will remain isn’t totally clear, and won’t be for months. What is clear is the market cooling is coming in like a freight train. That said, prices may already be responding to the change in the SNLR.
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