Real Estate Sales Growth “Exaggerated,” Market Moderating, Says Canada’s Largest Bank

Canadian real estate sales are printing big numbers, but the market is apparently moderating. That’s the take from RBC economics, whose latest analysis shows sales slowing in April. New listings have also begun to rise, helping to ease the inventory squeeze. However, the market has yet to acknowledge this, as price growth generally accelerated.

Canadian Home Sales Are High, But Growth Is “Exaggerated”

Local real estate board data shows home resales and new listings made very large jumps in April. The RBC analysis shows the indicators increased between 140% and 462% in large markets. “But base effects vastly exaggerated these numbers,” said Hogue, the bank’s chief economist.

Base effect is when growth for a period is skewed by comparison to an unnatural previous period. Last April was the first month affected by the pandemic’s lockdown. This caused sales to come in much lower than they would have naturally. Sales last month were very high, but the year-over-year growth isn’t meaningful.

Canadian Home Resales

Canadian home resales by market, seasonally adjusted at the annual rate.
Source: RBC; Better Dwelling. *seasonal adjustment is the RBC estimate, not the official data released later in the month.

“A focus on monthly (seasonally-adjusted) movements reveals signs of moderation across several housing markets in April” he said. “After soaring to outer space in prior months, home resales came down to a lower orbit—still generally strong but less excessively so—in Vancouver, Toronto and Ottawa.”

Home Price Growth Ignored Fewer Sales and More Inventory

Moderation of sales and more inventory did little to cool home price growth — for now at least. Annual HPI growth further accelerated in Canada’s largest markets in April. More inventory wasn’t noticed by pre-approved buyers, already prepared for bidding wars. 

Canadian Home Prices

The annual percent change of the MLS Home Price Index.
Source: RBC; Better Dwelling. *Montreal’s April HPI won’t be released until mid-month.

“Whether or not moderating in April, all major markets continued to heavily favour sellers. Inventories generally remain low (despite rising somewhat), leaving few options for buyers to fight over and fueling widespread bidding wars,” he said. 

Generally, the market is still very tight. The ratios are just above balanced, indicating it’s slanted in favor of sellers. However, there’s more inventory relative to home sales. Price growth doesn’t usually accelerate as more options come to market. This is a sign the market is running on more exuberance, than reality.

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  • Ian Brown 3 years ago

    The real estate industry suddenly that was promoting the bank narratives of low supply justifying higher prices, suddenly has been sayings banks don’t know what they’re talking about.

    In which case, they didn’t know what they were talking about when they drove home prices higher.

    • Omar 3 years ago

      Agents are trying to talk people into condos as quickly as possible for “affordability,” without a mention of the insurance industry looking to push maintenance fees much higher soon.

    • Buy or not 3 years ago

      Damn? House prices only jumped 5% in April instead of the 10%? This might be the signal that this insane seller’s market is coming to an end.

      Gonna wait a few months and save even more money on the purchase of my dream house

  • Jerry 3 years ago

    If you’ve already set your mind on spending money, it doesn’t matter what the reality is. You’ll justify the purchase, and bend reality to self-reinforce.

    Looking at this from the perspective of someone that’s owned for a long time, I can’t believe people would pour so much of their income into a single area, and not look at diversifying their exposure into the future.

    • The Truth Shall Set You Free 3 years ago

      100% in agreement…but this won’t end well. There is no way with wage growth stagnation that home prices at even half the average price now are sustainable. The real estate market in the GTA and (I assume) GVA have now become a Ponzi scheme. Hoping to buy and sell making 100s of 1000s of dollars but not wanting to get caught holding the bag. This is going to be worst than the 1990s. Up until 2006 I didn’t see anything wrong. It wasn’t til I opened my eyes and realized average home prices in Toronto were over 1 million that I did. That was 2018. This will end badly. There are no jobs (as the jobs numbers here in Canada include people collecting CRB and wage subsidies since they are taxable income) and when the subsidies end there will be a lot of people looking for jobs of which there will be none. Our government followed the rest of the world down the rabbit hole instead of staying where they were and now they can’t see past printing more to try and prop things up. Deflation is coming and with it the markets will fall and so too will the home prices. The only thing that will rise is crime. Thankfully our governments aren’t foolish enough to believe in the ‘Defund the police’ rhetoric that has been pushed. Funny thing the divide…only after Occupy Wall Street happened did the whole division of people worsen. It’s almost like the 1% paid individuals or told the government to push this narrative. IDK might just be me but it’s just interesting that one day people were marching all in unison demanding change and now 20 years later the 99% are in worst shape and the 1% own a lot more.

  • V 3 years ago

    And can people stop falling for the realtor tricks, their pretty much criminals in suits. Especially that clown Al Sinclair on cp24 who keeps telling people to overpay by 100’s of thousands of dollars and to come in “high and hard”. What a moron, no wonder why prices are skyrocketing, but they’ll just keep going up, right Al? Just like in 2017, right Al?

  • Holton 3 years ago

    U.S non agriculture job numbers just came in, it was far worst than expected. But the stock market didn’t take a hit and bond yields didn’t move. You know why? Inflation, this is the key dynamic in the market right now. If usd’s exchange rate drops its inflation will be even higher. This is like the 70s when we had stagflation.

    Don’t expect housing to come crashing down anytime soon. Just ask yourself this, if you have 5 million what would you do to protect yourself against inflation? There you go.

    The real issue is how we distribute real estate wealth. I propose taxing people who own multiple residential properties.
    Those of you who thinks increasing interest to crash the housing market will be very disappointed.

    • Whiskey Foxtrot 3 years ago

      I have 5 million that needs to be allocated. I advise people with much more than that. In absolutely zero cases would we say allocate that to a primary home, because once residential real estate prices are above the cost middle class people can afford, it only increases with inflation.

      The 20% gains don’t apply to anything above $2 million. This is poor (comparatively) people telling each other this is how you make money.

      • The Truth Shall Set You Free 3 years ago

        In agreement 100%. From what I’ve seen the homes 2 million plus are all selling below asking or not selling at all and keep getting reduced. This is just fear (for those without money) of missing out and it’s like an infection. Those with massive amounts of cash are sitting on it waiting.

  • Smug Canadians 3 years ago

    We are screwed, and we’re too stupid to know it’s staring us in the face. Canadians are really not as smart as they like to think. In fact, I think we’re a little less than average intellect. How else can you explain this stupidity?? Herd mentality with real estate! especially when there is history to learn from!! Stupid smug canadians!! that is us! we deserve what’s coming!

  • Ashley 3 years ago

    I am loosing confidence in Canada’s economic health day-by-day. Debt levels are increasing at such fast pace and people continue to bid up house prices thinking they’ll keep going higher because immigrants are coming. I don’t know what type of immigrants would like to come to Canada given the high cost of living and remote possibility to be ever able to buy a decent house.
    Moreover, people are drinking govt. kool-aid that they won’t let prices fall. Govt’s priorities change like weather, however debt doesn’t goes away that fast. To be honest, I don’t see a future of raising family in Canada.

    • Sara 3 years ago

      Agree with you 100%. I am in the industry and find this reliance on real estate ridiculous. My spouse and I make over 200k and have been trying to save down payment. Once we reach a decent amount, prices fly higher. I am not willing to pick up a 2 bedroom townhouse for over a million and then have to count our pennies for everything else. Given the amount of taxes we pay, a poor public education system (important to us since we have a child), and losing confidence in the canadian economy, we have now started considering moving else where. You are not awarded for being financially responsible here.

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