Third time’s a charm… maybe. The latest Canadian Real Estate Association (CREA) shows large revisions for sales numbers. Most regions in Canada will see a drop in sales this year, with BC and Ontario leading lower. The only growth in sales expected are east of Ontario, but next year is looking rosier.
Yes, Forecasting Is (Still) Hard
Just like we said last time the forecasts were released – forecasting is hard. People that don’t do it for a living think you toss in some data into a model, rub a genie’s lamp, and out comes numbers. Unfortunately, it’s not so easy.
Forecasts are based on the information available at the time. That means as a situation evolves, the numbers are likely to change – especially as you get more info. That said, we did say the original forecast in 2017 didn’t make sense, since they ignored changes to credit capacity. Anyway, point is – don’t rag on them too hard.
Canadian Real Estate Sales Forecasted To Drop Over 11% In 2018
CREA expects sales to drop across Canada, even further than anticipated previously expected. The agency is forecasting 458,200 sales in 2018, down 11.2% from the year before. That is even larger than the 9.8% decline they were expecting as recent as September. It’s even bigger than the 7.9% decline they forecasted in February.
Note: The 2018 forecast means December is expected to have just 21,769 sales. That means they’re expecting the fewest December sales since 2012, or they’re lowering the number so it comes in “surprisingly high.” The latter is called sandbagging, and is very popular in forecasting. Not that they would do that intentionally of course.
In 2019, things are forecasted to get better. The industry expects 456,000 sales, 0.5% lower than the 2018 number, and 11.61% lower than 2017 numbers. This is a revision from the 2.1% increase they expected in September.
Canadian Real Estate Sales Forecast
The Canadian Real Estate Association sales forecast for 2018, and 2019 – including revisions.
Source: CREA, Better Dwelling.
Ontario Real Estate Sales Forecasted To Fall Nearly 14% In 2018
Ontario sales are expected to drop even further than previously thought. CREA is forecasting 190,500 sales in 2018, down 13.9% from the year before. In 2019, sales are expected to hit 193,100, up 1.4% from the 2018 forecast. However, it’s still down 12.77% from the 2017 sales numbers.
This is a downward revision from September’s forecast. They were expecting 193,300 sales in 2018, a decline of 11.8% from the year before. In 2019, they were expecting 203,600 sales, up 5.3% from the 2018 number. All forecast numbers were lower than the province’s 2017 numbers.
Canadian Real Estate Sales Forecast
The Canadian Real Estate Association September sales forecast for 2018, and 2019.
Source: CREA, Better Dwelling.
British Columbia Real Estate Sales Forecasted To Fall Over 24%
British Columbia is still expected to have the biggest decline in Canada. In 2018, CREA is now forecasting 78,600 sales, down 24.2% from the year before. In 2019, they’re expecting 74,500 sales, another 5.2% decline from the 2018 forecast. Next year is expected to be a whopping 28.19% lower than 2017’s numbers – ouch.
The province was previously expected to see the largest decline, but it’s even larger. In September, they expected 2018 to come in at 80,700, down 22.2% from last year. In 2019, they expected a further drop to 80,400, down another 0.2% from the 2018 numbers. That was rough, and they still had a downward revision on top of that.
Quebec Real Estate Sales Forecasted To Rise Over 4%
Quebec received a rare upward revision, with better than expected performance this year. CREA is now forecasting 2019 will come in at 86,500 for 2018, up 4.8% from last year. In 2019, the number is expected to rise to 88,400, up another 2.2% from the 2018 number. The 2019 number is up 7.09% from 2017 sales, which is huge growth into rising financing rates…. a little contrary to normal markets.
Previously, the province was expecting lower growth. CREA’s September forecasted 2018 sales would come in at 85,600, up 3.7% from the year before. Sales in 2019 were expected to rise to 85,700, up another 0.2% from the 2018 forecast. The agency is giving these numbers a decent sized upward revision.
All but three provinces are expected to see lower sales in 2018, but next year is looking better. Of course, that’s subject to revision.
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Anyone who thinks there is a lot of confidence in Canadian housing and the future of the mortgage industry right now should have a look at what happened to Home Capital Group this morning after Warren Buffet announced his exit.
Best tweet of the day on the Buffett exit came from BD this morning.
https://twitter.com/StephenPunwasi/status/1075399648687210496
Actually Buffet wanted to buy a much larger stake in Home Capital. He’s exiting because the company’s director’s turned him down. I do agree with with the majority of commenters that home sales will decline in 2019, limiting price appreciation to slightly more than the rate of inflation.
You must be living in a dream world. House price is dropping like a turd in a toilet. When median prices are 10x or 20x (looking at you Toronto and Vancouver) the median income, this is what happens. Sit back and grab some popcorn! The show is just beginning!
He was willing to buy even more shares last year. Not recently.
Yeah, but at what price? 9$ a share and reconduct the credit line?
lol. I think that’s what people are missing. He got below market equity, meaning the company basically paid him with shareholder money to take them. Then he got paid for providing the LOC, which they only needed for regulatory reasons.
Who wants to bet they didn’t realize what they forecasted for December, since they just make numbers up?
“Just like we said last time the forecasts were released – forecasting is hard. People that don’t do it for a living think you toss in some data into a model, rub a genie’s lamp, and out comes numbers. Unfortunately, it’s not so easy.”
It is actually that easy. Getting it right on the other hand…
https://www.zolo.ca/brampton-real-estate/28-meadow-bush-court?utm_source=zolo&utm_medium=email&utm_campaign=new-listing
Properties are getting better and coming down in price. Psychology has shifted and anyone ‘under pricing’ to drive interest is going to be hit with reality . the fact that the pics in this listing are from fall , I have to guess 30-60 days old. but could be wrong (thanks global warming). My point is that we can look at TREB or BD or the MSM but the proof is in the pudding. RE agents, for better or worse, only use comparable properties so I don’t need to look at the sold prices, the fact that listings are in this price point indicates where the market is headed. If someone has any contra info please share, would love to see a market that is up vs 3-6 months ago. Tick tock. BD4L.
Looking at comparables to my modest 2010 Aurora home, sale prices, not list prices, my home is falling in paper value by $6000 a month, since summer 2017. Its all relative though because in April 2017, prices were up 30% in the previous twelve months which is just bonkers. I have a magical number I hope I don’t see during this correction, and anything above it i’m still feeling ok, though disappointed by the drop in equity.
Surprisingly, a few neighbours planning an early retirement related move in the next two years, still expect to clear a million dollar sale price, whick I think is way, way off as panic selling has not even begun yet. Nobody I know socially believes the current status quo is anything more than a blip or pause and things will go back to normal soon enough. I just see homes not selling…
for Vancouver area, the only panic sellers seem to be the ones under BC assessment which are VERY few and even they don’t see much action either since same properties are relisted for the last 6 months… but the majority are trying to sell over the last year’s assessment between 10-30% which is nuts… this is just my simple observation by looking at the rew.ca data
Not sure where you’re looking but the stuff I’m seeing is priced at or below assessment and then selling substantially below assessment (10-25% below is typical in single family home if you want to actually sell. The leading indicator will ultimately become the norm).
bullshit…check yourself at rew.ca and for almost every listing there there is a graph button close to the the heart one where it shows the last assessment …I checked for Vancouver, Bby, Coquitlam and North shore, for detached, condos and TH….sellers are really in the fantasy world. Good luck to them.
You getting kick back,if you want to post a house post sold price.do not list a house for sale,your doing their job for them.how things have change,I remember when you would have been all over someone for doing this.
Huh? This is an example of listing prices decreasing for what appears to be a quality home.
I’ll explain for the other curious readers why this is important…
There are a couple reasons why this is important… Firstly, as Blue noted, prior to listing a house, RE agents look to other recently listed and sold homes in the area which are comparable to determine the recommended list price. Combine that with low sales, it becomes a self-fulfilling decline in list price as homes continue to compete on best price to sell first… panic sellers not required, just classic competitive pricing.
Secondly, psychology… Houses have been selling below asking for nearly a year now. There is an expectation that houses will be sold below asking. Combine that with competitive pricing, and it will push prices down… panic sellers not required.
Before you counter, consider what happened on the way up…
Consider the fact that rents are through the roof and will remain there as new basement apartments have no rent control. Yes brampton doesn’t pull in high rents, but scarborough and etobicoke – value neighbourhoods will not go down, as rental income > EMI. Simple equation.
With oil down our Fed is less inclined to increase interest rates vs USA.
With oil down were likely to see rising rates into a recession.
How else can Canada prevent a Venezuela situation?
@betterdwelling; I can’t understand why the overall titles of your articles are biased toward a downturn or an incredibly negative state? I understand the charts – I do analysis for a living – but take a look at the text from your own article:
“ A lot of people in Toronto have no mortgage debt, and the majority have whittled away at their mortgage. Only 26% of Toronto CMA households have a mortgage right now. That means the other 74% are helping to averaging the mortgage numbers lower. Now consider 79% of mortgage holders have owned their home for longer than 5 years. Those that did, bought at much lower prices, and made significant dents in their debt pile. The other 21% of recent home buyers have much higher mortgage DTIs than the average home in Toronto. That means a fifth of mortgages holders are vulnerable to rate hikes, and the shock that occurs at the end of the business cycle.”
This is the part where it goes off rail:
“Who gives a f**k about these highly indebted households? Well, they impact comps, financing rates, and ultimately the value of your home. If they’re forced to sell lower, the value of your home goes lower. If they default at a higher rate, they raise the costs for new buyer financing, reducing liquidity. Reduced liquidity means lower buyer competition for your home, when you decide to sell. Both of these problems ultimately turn into a homeowner’s liability, even if you aren’t one of these highly indebted households.”
When 74% of people in Toronto have paid off their homes and 79% of the remaining 26% (which is 20% of the total) of the mortgage owners have had their mortgages For a relatively considerable time; how is it that that a mere 6% can seriously impact the 94% who are considered as solid by your own judgement? Am I missing anything?
Outstanding debt servicing costs impact MOST households. By the BOC’s measure, 8% of households suffer extreme vulnerability to rate hikes, and the vast majority of that 8% is located in Toronto and Vancouver, which make up 40% of all real estate debt.
The thing that you’re missing is debt servicing costs, and bond yields are all impacted by everyone’s frivolous borrowing. Once credit growth stops, your servicing costs rise dramatically and more of your income goes towards debt service, even if your mortgage has 5 years of payments in it.
Higher debt servicing costs mean less money is spent in the economy, which is one of the biggest triggers of a recession. Toss in a 4% rise in unemployment (which would be a mild recession), and you have even more people that can’t afford their home.
Meanwhile, home values are dependent on the value of your assets. Higher servicing costs, and tighter credit means less home value liquidity. Most middle class families have about 80% of their net-worth tied up in their home. They see a decline of say, 20%, they’s wiped out years, possibly decades of work. That also brings their debt to asset ratios down, which makes it even harder for them to apply for future credit.
Now you have a lot of people that are either unemployed, can’t afford their home, saw decades of income wiped out, with low access to credit, hindering the recovery from a fairly mild recession. All because people like you were a little whiney about things sounding too negative, and risk is boring to you. Personally, I think this blog is downplaying the risk of things to come, and professional institutional reports are A LOT MORE NEGATIVE right now.
If you do analysis for a living, I’m worried about your clients if you can’t see the way a single moving part can half the whole model.
The reason Canadians are being smoked by immigrants and foreign economies, is because the rest of the world lives in reality. You would prefer to hear that things are great, even when Canada is staring at one of the biggest financial crisis the country has ever seen. That’s not me being dramatic either, the Bank of International Settlements, which is a union of central banks, is actively warning members that it will likely happen in Canada. Central banks now need to decide if they’ll share the risk of irresponsible Canadians, or lower risk exposure to Canada (making things worse). If Canadians don’t realize they’re in an unsustainable situation, the rest of the world won’t help mitigate the problem.
Absolutely right nice blog thanks for sharing.
Thanks Ethan.
Very thorough and knowledgeable response.
I do analysis – not in the financial sector – so please don’t whip me that bad.
It was just a question that you answered beyond my expectations.
Its fair to say this 20-25 % segment of RE would be considered a pillar in this area of the economy. If there is weakness in this pillar then there is reason to be concerned. The shock of this pillar weakening is the effect of a broader economic slowing down. Not just RE alone. The perfect storm scenario, which is what I think is going on now. Low gas prices, job losses, over priced RE where the average family can not afford a home. All plays on the minds of the small guy and what he/she will do with that; buy or sell.