Canadian real estate sales are off to a weak start in 2019. Canadian Real Estate Association (CREA) numbers show dollar volumes have made a sharp decline in January. The drop makes this month one of the weakest the country has seen in years.
Real Estate Dollar Volume
Dollar volume is a less popular, but very important, indicator to help determine market liquidity. A rise in dollar volume indicates more money, which generally means more liquidity. Falling dollar volumes mean less money, and generally a decline in market liquidity. By itself, it’s hard to actually extract much meaning. Instead you should combine your takeaway with sales, inventory, and prices to get a better overall market picture.
Canadian Real Estate Dollar Volumes Drop Over 9%
Canadian real estate dollar volumes continue to fall. CREA reported $10.9 billion in sales in January, down 9.4% from last year. Compared to January 2017, last month was down 9.33%. The declines actually make it the second weakest sales volume in at least 3 years, the weakest being this past December.
Canadian Real Estate Dollar Volume
The dollar volume of Canadian real estate sales, as reported through the MLS.
Source: CREA, Better Dwelling.
Largest Dollar Volume Declines Are In British Columbia
The biggest gainers from last year were London, Quebec, and Ottawa. London had the highest increase to $201 million in sales in January, up 33.6% from last year. Quebec City followed with $151 million in sales, up 19.5% from last year. Ottawa came in third with $332 million, up 18.4% from last year. These three markets are considered “major,” but all do a relatively small amount of transactions in contrast with the largest markets.
Canadian Real Estate Dollar Volume By Market
The dollar volume of Canadian real estate sales in markets with over a billion in sales, as reported through the MLS.
Source: CREA, Better Dwelling.
The largest declines in real estate sales were all located in British Columbia. Fraser Valley was the biggest loser with $481 million in January sales, down 42% compared to the same month last year. Vancouver followed with $1.11 billion, down 41.7% from last year. Victoria came in third, reporting $196 million in sales, down 32.2% from last year.
Toronto was somewhere in the middle in January. Just over $3 billion in sales went through in January, up 1.3% from last year. The number is still negative in real terms, but outperformed the national average. A big change from last year, when it was leading the way lower for many months.
The year is off to a weak start, with dollar volumes dropping off in the first month. Most of the weakness is coming from Western Canada, especially in places that saw a sudden surge in prices over the past few years. However, there is some growth in smaller and cheaper markets.
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People should keep in mind that this reduction is ahead of the macro even that follows a price boom. This party’s just getting started.
Ethan is right. The last time we went through this it took around 7 years from peak to trough, which garnered a drop in prices of 40-50%. Depending on how you measure it we’ve probably just recently passed the peak.
The gov’ment will try to stop it but that’s never worked out well in the past. Could be an interesting ride.
Can you elaborate? Sorry I am new to real estate. When was the last time we went through this?
1990-97.
1990 to 1996 actually.
“Toronto was somewhere in the middle in January. Just over $3 billion in sales went through in January, up 1.3% from last year. The number is still negative in real terms, but outperformed the national average.”
How is an increase of 1.3% over last year “negative in real terms”?Comparing it to rate of increase, which I think the quoted statement is referring to, which it didn’t actually state, is lower than last year but that comparison is misleading. An increase in Toronto sales dollar volume is an absolute increase. Also, Toronto sales volume is down but the dollar volume is up which indicates that prices are up. Toronto is a big place, the statistics should be broken down into areas of Toronto which would reveal a more accurate data representation. Doesn’t look like a bubble burst in Toronto to me.
Real means adjusted for inflation (below in this case). Factor in your carrying and transaction cost and you are deep in red.
Thanks for defining “negative in real terms”. In 2018, real estate did much better than the TSX which, over that year, lost 11.64% which, in “real terms” taking inflation into account is worse than that. Here’s a chart of yearly TSX total return performance for each year from 1988 through 2018. It would be interesting to compare the cumulative performance of the TSX and Toronto real estate for the same 1988 through 2018 period. That would, of course, not take into account any income such as dividends from equities or rent from real estate.
Here’s the chart of the TSX yearly total return performance from 1988 through 2018: http://www.1stock1.com/1stock1_766.htm
Regardless of the type of investment, figuring out real net return is not simple because there are many factors that must be accounted for such as taxes, inflation, interest, carrying costs, fees, income from investment, etc.
An an investment can do better than another but still generate a negative return (nominal or real). Not sure what your point about the TSX is? I guess something along the lines of “See other people’s investments are doing worse than mine, you should buy what I am buying”. Can the TSX crowd claim victory by comparing themselves to the Bitcoin bros?
Real vs Nominal
Example, this year a total of $110 bucks was spent on RE, last year only $100. (10% growth) HOWEVER, last year $100 bought you 50 sheep ($2 each) this year sheep have gone up to $2.40 (20% inflation) so $110 only buys you 45.8 sheep. OR last year 50 sheeps worth of value was spent on RE, this year only 45.8 sheeps worth of value was spent on RE. I blame the central banks for that 4.2 sheep fleecing!
There’s your problem, you’re using the TSX. Canada is a two-trick pony, real estate and cannabis. When they print excess credit to inflate real estate prices like they are, the value of the dollar gets weakened. Your house is worth more, but your buying power is worth less.
There’s a good thread on real estate values in USD here.
https://twitter.com/StephenPunwasi/status/1083059897929949189
Of course, middle class people usually don’t make enough to have a properly diversify or the skill to manage a multi-currency portfolio. Consequently they chose to believe that monetary expansion is “shrewd investing,” not realizing for every dollar your house gains is one printed reducing the value of your actual work. If that weren’t the case, 68% of Canada would be rich, which isn’t the case.
Keynes, the person whose work our central banking systems are modeled on, actually makes many points as to credit and asset stimulation through rate manipulation. Spoiler alert, the average person that doesn’t understand monetary policy gains and loses as a political tool, but doesn’t make any “real” movements towards a higher class.
Grim Reaper, from you reply I can tell you had no formal economic education. That’s funny you don’t know why inflation adjusted is real rate. Compare to TSX? housing in not an “investment” it’s a nessesity. Don’t compare real estate to stocks. When morons like you start “investing” in real estate that’s when you know a crash is coming.
Negative in real terms means that it is below the rate of inflation.
Great article! However, don’t you think that looking solely at dollar volumes is slightly misleading? In order to understand the overall picture of the current January Housing market, it would be wise to compare this with other statistics. For example, the recent drop in sale price has actually shown strongest signs of stabilizing compared to the past 4 months. Further, average percentage price change for most home times is actually UP 4% when compared to the beginning of 2018.
From the BEGINNING of the article: “you should combine your takeaway with sales, inventory, and prices to get a better overall market picture.”
The real estate industry never fails to inspire confidence.
I wouldn’t expect a Lawyer to draw attention to the obvious fact that flaws his statement.
I’m still seeing a lot of domestic inbound migration into the GTA. The high cost of living, for workers, is not the deterrent the bogeymen pundits make it out to be. People are still coming. But sales are declining. So….sales are getting decoupled from population growth. Pardon me while I run over to get my cow bell. I feel the need to shake it.
About that bell…
https://betterdwelling.com/see-ya-local-millennials-are-abandoning-toronto-and-vancouver/
I was thinking about 40-somethings. Recruiting at work in the city, out of towners’ applications easily outweigh local applicants, 4:1. Ten years ago it would have been rare to see more than two or three out of towners apply for each position posted. I see folks from smaller cities seeking opportunity here despite the downsides of the GTA.
Is it sustainable? not likely if RE contracts like U.S. in 2007+ as too many jobs will vanish in allied sectors. Word will get out, there’s no work here…
maybe the ratio changed bc there are no jobs where those people currently live?
Sign the petition!
“Mr. Morneau, don’t drive up home prices by loosening lending standards.”
https://www.change.org/p/bill-morneau-mr-morneau-don-t-drive-up-home-prices-by-loosening-lending-standards-f32354e9-d7e5-4852-b2b4-d26365433e08
What we are seeing is a spill over of illegal money from Vancouver to other places such as Toronto. This includes foreign as well as domestic, Toronto needs to crack down on real estate speculation because unlike stocks housing is an Nessesity. you push housing price too high young professionals who pay most of fhe taxes for years to come will leave the country. You are looking at 30 years of lost taxes in favor of slightly more taxes from real estate. Not to mention the human cost and social friction. Canada is one of the least populated country in the world. Cost of living push our labor cost up, we are next to the states. What ends up happening is we will lose all our industries and talent to America and our economy will just turn into a giant Detroit moment. We don’t have a competitive tech sector because all the talent went South. Toronto is Canada’s last reserve of talent, when young talent leave Toronto it’s over. Once they go South they will not come back. Toronto housing price is not just about millenials buying a home. It’s a means to save Canada’s last reserve of talent. We keep this up Canada will become Detroit very soon. I know many who already left and many more thinking. I personally know some who finished his PhD and left for the states where he got a big house in just 2 years and started a family. If he stayed he would make 1/3 the money and pay 50% more taxes and 6x housing cost. It’s a no brainer, Toronto’s housing is not just about housing now. It’s about the future of Canada. introduce a law where only people who pay taxes in Toronto for 2 years can qualify to buy a house will lure people to stay and make sure “investment” real estate is taxed heavily to fend off speculation.
I cannot help but comment on the real issues of trying to make a good life in Canada.
I moved to the US 20 years ago and did fine. My wife and I are looking at moving back to Canada to be closer to our grandkids but we won’t do it because we cannot afford it.
If we move back, our taxes will double, no kidding. We could buy a place in Toronto, but it would be 30% of the house that we live in here in Florida.
We love Canada, and spend time there every summer, but it is no longer a good place for young people to build a future or for old folks to live.
If the US gets rid of Trump and puts in a single payer system, the border will be overwhelmed with young, educated people trying to move south.
Just sayin.
I have many friends who have left Canada for the US to start families. The pay is similar and the housing is 50 percent the price or less, lower taxes, and more buying power with the dollar.
The fact Trudeau didn’t push through the pipeline combined with Trump’s pro-oil economic turnaround has enticed all kinds of workers in the oil patch to head South, let alone other industries mentioned previous such as tech, medical, sciences etc.
Could not stop for commenting. My wife and i together make 200 + CAD annually still feels that buying a good house in Toronto or GTA as per our expectations is beyond our limits. Moving to any city in US will be much better option.
Toronto is no more worth living. I am planning to search job elsewhere and move on.