February 16, 2021 | 10:27
Canadian Existing Home Sales (Jan.) — Hot Hot Heat
Canadian existing home sales rose 2% in seasonally-adjusted terms in January, setting yet another record level. From a year ago (i.e., just before the pandemic broke out), sales were up a hefty 35.2% and, on a 12-month basis (which includes the full length of the spring shutdown), sales were up a still-strong 13.8%. In other words, demand is piping hot. Mortgage rates remain at record lows; employment in higher-paying industries has more than recovered pandemic losses; and, there’s a feeding frenzy (to put it mildly) on larger properties outside the core of the major cities.
Meantime, new listings fell 13.3% in January, which has lifted the national sales-to-new listings ratio to an unheard of 91%. Think of that another way: Across Canada, almost all new listings are getting absorbed within a month. And the standing inventory of homes available for sale would be all gone in less than two months. We’ve seen such readings in local markets during periodic episodes of extreme strength, but this metric typically runs around 60% nationally. Indeed, of the 26 major markets tracked by CREA, 20 are reporting double-digit sales and average price growth.
Against that backdrop, it doesn’t take much imagination to see prices rising. They are doing so rapidly, at an accelerating rate, and across almost all of the country. The national MLS HPI rose 13.5% y/y in January, the fastest clip since mid-2017 (when policymakers were actively trying to calm markets in Toronto and Vancouver). From six months ago, prices are up 20% annualized; and from three months ago they’re up 22% annualized. Unless there’s a sudden release of listings (unlikely, especially for detached homes, with mobility down), or a sudden break in demand, we’ll repeat again that prices are going higher still.
A few more observations/thoughts:
The Bottom Line: The Canadian housing market is fully boiling, with strength across most markets—a few urban condo markets are the exceptions. For policymakers, it doesn’t appear that there’s much interest in leaning against an area of the economy that is actually strong at this time, especially with years of tightening mortgage rules already in place. For the Bank of Canada, inflation remains well under control in the consumer basket, but asset prices are becoming another story…