The Canadian property bubble could have been built by the Swiss, it’s moving so precisely. The sales to new listings ratio (SNLR) is a measure of absorption, and has a track record of leading price growth. A couple of months ago, we said the rapid decline in the ratio would lead to price growth peaking right around now. Last month’s data looks like that prediction is holding true.
Canadian Sales To New Listings Ratio (SNLR)
If you missed it (or need a refresher), we did a run down on the historic relationship of home prices and the SNLR. Since 2005, the national benchmark has seen price growth peak 2 to 6 months after the SNLR peaks. The SNLR peaked in January of this year, so that would mean price growth would peak in March to July. It hasn’t yet, but the probability of it doing so this month (July) is now very high.
The SNLR for Canadian real estate keeps spiraling lower, and it’s doing it at a very fast rate. The seasonally adjusted SNLR fell to 69.2% in June, falling 5.9 points from the previous month. It’s now 21.6 points lower than the peak reached in January. More bluntly, the market is 23.8% better supplied than it was back in January, relatively speaking.
Canadian SNLR vs Annual Price Growth
The sales to new listings ratio (SNLR) compared to the annual rate of benchmark price growth, for composite homes across Canada.
Source: CREA; Better Dwelling.
Most people heard about the annual rate of price growth pushing even higher, but few looked at it. Annual growth for June came in at 24.43%, just 20 bps higher than it was a month before. It was the smallest acceleration for the trend since May 2020, when people thought the word was going to end. It’s an abrupt slowdown, considering how fast home prices were moving a few weeks ago.
Canadian Real Estate Price Growth Is Unlikely To Rise Further
For those not seeing it, I find a less abstract look at the numbers can make it more clear. Let’s do it in dollar terms. Back in January when the SNLR peaked, it was a very tight market. The following month saw the benchmark price rise $27,600 over just the month. Yeah, bruh. Seriously. Prices jumped by $27k in a month, and people thought it was fundamentals.
The SNLR has fallen since then, along with monthly price growth. The ratio fell to 69% in June, and prices advanced $4,900 in the same month. Keep in mind people use the previous month’s data to make decisions in the current month.
Canadian SNLR vs Monthly Price Growth
The sales to new listings ratio (SNLR) compared to the monthly dollar change in the benchmark price, for composite homes across Canada.
Source: CREA; Better Dwelling.
The price move in June was influenced by perception of May numbers. Last month’s numbers will play a large role in market perception this month. That means this month is likely to see even smaller monthly home price growth.
Crunching the numbers yesterday, we showed June is likely to have been the peak. Prices need to rise 2.0%, about $14,800, in July to even maintain the current annual rate of price growth. If it doesn’t rise at least that much, we have June as the confirmed peak. That’s in line with historic SNLR timelines, which showed it would be between March and July. Can I get a “fuck yeah” for math?
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