October 15, 2020 | 09:41
Canadian Housing Soars: Can It Last?
Canadian existing home sales blew the doors down in September, with record highs for sales and prices, replete with the tightest market in years. Sales rose a further 0.9% m/m in seasonally adjusted terms, lifting them a massive 45.6% above year-ago levels (which were no slouch), with gains spread across much of the country. This is more than just pent-up demand from the spring shutdowns, as sales over the first nine months of the year are now up 5.8% from the same period in 2019. The sales surge has reduced the inventory of unsold homes to just 2.6, a record low. Looked at another way, the sales-to-new listings ratio soared to 77.2%, the highest in almost 20 years; and, two cities recorded a ratio above 100%, an exceptionally tight situation.
Amid the tight market, it's little surprise that prices are responding, in a big way. The average transaction price galloped 17.5% above year-ago levels, with the average gain now at 11.6% on a year-to-date basis (i.e., it's not a one-month fluke). These figures are somewhat pumped up by the shifting mix of homes actually being sold—more single family homes, more in the pricey Vancouver and Toronto markets. But even adjusting for these forces, the MLS Home Price Index has risen by a hearty 10.3% in the past year...pretty much the opposite of what many analysts were looking for six months ago.
Normally at this point we dig into some of the regional specifics. But we can mostly dispense with that formality since the strength is so broadly based across the land, as shown by the second column in the table below (albeit with the Prairies lagging slightly on the price side). The bigger issue is whether this remarkable snap-back in housing can be sustained amid a number of challenges hurtling in the market's direction. To wit, the deeply chilling economic impact of renewed restrictions amid the upswing in virus cases, the deep slowdown in immigration, and the end of mortgage payment deferrals for some borrowers. Providing massive support on the other side are record low borrowing costs, strong demand for more or better space, and strong investor demand for housing in many cities. We suspect the former factors will somewhat dampen the market in coming months, especially with pent-up demand forces now fully satiated. But the latter factors are not going away anytime soon—suffice it to say, we don't subscribe to the deeply bearish view on Canada's housing market.
The Bottom Line: Records continue to fall like dominoes in Canada's remarkably resilient housing market. As one outfit put it, not even a global pandemic managed to knock the Canadian housing market off its game, and it's doubtful that even a serious second wave would have much more impact. Still, we doubt that this recent sizzling strength can persist amid some of the building headwinds, which should at least somewhat tame market conditions in the months ahead. The underlying economic conditions simply do not support such a piping hot market over a sustained period.