December 15, 2021 | 09:36
Canadian Existing Home Sales (Nov.) — To the Sun
Canadian existing home sales rose 0.6% in seasonally-adjusted terms in November (-0.7% y/y), leaving demand at a still very heated level. The level of sales volumes now sits a cool 33% above the 2019 (i.e., pre-COVID) average, after a supposed 'cooling' in the market through the summer. Meantime, new listings rose 3.3% in the month and sit 3% above the 2019 average, again highlighting what side of the market is out of balance.
This combination is keeping the broad market very tight, with the sales-to-new listings ratio a lofty 77% in November after dipping slightly in the month. The months’ of inventory on the market held steady at 1.8, which matches the record low set in March of this year.
Against that backdrop, price growth continues to accelerate. The MLS HPI rose a record 25.3% y/y in November, eclipsing the pace seen early this year. Over the past six months, prices are up 22% annualized; and over the past three months they're up 32% annualized. Not that anyone has warned about this outcome, but this looks like a market that is feasting on low interest rates and reinforcing itself with expections of price gains.
Tight conditions persist across most of the country in what continues to be a national housing market story. Sales performance in November across the 26 major markets tracked by CREA was decidely mixed, but average prices are up across all markets. Using the MLS benchmark as a guide, price growth from a year ago ranges from 4% in Edmonton (which itself is an improvment from pre-pandemic trends), to 16% in Vancouver, to 28.3% in Toronto, and into the 35%-to-40% range in some smaller markets (here's to Brantford, Moncton and Chilliwack, among others).
Meantime, Canadian housing starts surged to 301k annualized units in November, just shy of the record set earlier in the year. In case there’s still any confusion about supply vs. demand in the housing market, starts have now averaged 276k annualized units over the past twelve months, the highest on record (completions are also at a record high). Multi-unit properties led the surge in November, with most of the strength concentrated in Ontario.
Looking ahead, the next test for housing will be interest rates. Five-year fixed mortgage rates have already backed up by roughly 50-to-70 bps from early in the year, but the market has cunningly rotated into variable-rate mortgages with purpose. In fact, variable-rate mortgage issuance now exceeds fixed for the first time in at least a decade. Of course, this comes ahead of what we believe will be 100 bps of tightening by the Bank of Canada next year, closing the gap between the two rates. Is that enough to seriously cool the market? It will certainly be a dampener, but the job market is very strong, wage growth is picking up and, after adjusting for inflation or house-price growth expectations (which have been allowed to harden), those mortgage rates would still remain negative in real terms.