April 19, 2022 | 10:44
Cdn. Existing Home Sales (Mar.) — They'll Be Coming Down the Mountain
Canadian existing home sales fell 5.4% in seasonally-adjusted terms in March, leaving activity down 17.8% from a year ago. Keep in mind that last March was the absolute summit of the pandemic demand mountain, so the reported year-over-year drop is somewhat exaggerated. Indeed, even after these declines, the level of sales was still running 34% above pre-COVID (2019 average) norms. That tells you how heated the demand side of the market really was. That said, we purposely use past tense here because there are signs that the appetite is pulling back amid higher mortgage rates, and the decline in March might be the first in a longer series of softening trends.
New listings similarly fell 5.5% in the month, leaving the market balance essentially unchanged. The national sales-to-new listings ratio sat at 75.3% in March, still well in sellers’ terrain. And, the months’ of inventory on the market crept up to a still-low 1.8 in the month. Again, these conditions are changing quickly.
The MLS HPI rose 27.1% y/y in March, down from the record set in the prior month. On a month-to-month basis, price growth cooled to 1% after seasonal adjustment, after running in the 2.5%-to-3.5% range over the prior six months. The coming months, especially through the second half of this year when higher mortgage rates really start to bite, could start to show outright declines.
Regionally, scanning market balances reveals some differences. The suburban Toronto market is arguably slowing fastest, and the overall GTA balance suddenly looks very neutral. Smaller markets further outside the core are cooling quickly as well. Elsewhere, Alberta remains rock solid, and Atlantic Canada still looks to have very tight markets. Vancouver, Ottawa and Montreal are mixed in between the extremes.
In a separate release, Canadian housing starts held at a robust 246,200 annualized units in March. While down from the massive prints seen a year ago, the three- and six-month averages (244k and 252k) are still historically strong. Contrary to the popular narrative, Canada is building pretty much all it can at this point, especially with the job market in construction running at full capacity. Indeed, there are currently 330k units under construction—that’s the largest amount by a long shot going back to the 1950s, and just about matches the 1970s boom on a per-capita basis.
The Bottom Line: The housing market is changing quickly right in front of us, but it’s still too early to see the impact of rate hikes in the official data. Considering that many buyers are somewhere within 90-day rate holds, and another 100 bps of tightening is likely by mid-July, we might not see the full impact until the second half of the year. We suspect conditions will feature lower demand, more ample inventory and price declines across a number of markets.
For some related thoughts on the mortgage market, see The Weight of the Mortgage Rate.