October 13, 2023 | 10:22
Canadian Existing Home Sales (Sep.) — It's a Buyer's World, Again
Canadian housing activity continues to weaken after a brief bounce during the spring and early-summer. And, with the bond-market selloff pushing fixed mortgage rates higher, the latest Bank of Canada pause isn’t helping this time around—no surprise there.
Existing home sales slipped 1.9% in September (seasonally adjusted), and were up a modest 1.9% from year-ago levels. While current activity might feel very quiet compared to the rampant demand days of 2021 and early-2022, current sales volumes are still in-line with pre-COVID norms.
Meantime, new listings rose 6.3% in a sixth consecutive month of solid seasonally-adjusted flows. That leaves new listings up 14.2% from a year ago, and at the high end of pre-COVID norms. Put another way, the unique period in early-2023 when there was a complete dearth of listings is now over, and we’re seeing much more ample supply.
That continues to soften the market balance in a meaningful way. The sales-to-new listings ratio fell to 51.4 in September from 55.7 in the prior month, and is now down from as high as 68% in April. For comparison, the 10-year average is 61%, and these latest results are encroaching on the lowest (i.e., softest) readings of the past decade. The months’ of inventory continues to gradually climb as well, to 3.7 in September—that’s still well contained.
These dynamics suggest that prices will continue to be pressured down, and that was the case in September. The national benchmark price dipped 0.3% in the month (+1.1% y/y), ending the run of five months of gains since the spring rebound. From peak early-2022 levels, the benchmark price is still down 10%, but has rebounded just under 7% from the March 2023 low.
All told, more ample listings, restrictive mortgage rates, cautious investor demand and a subdued economic outlook all suggest tough market conditions. We believe the risk for prices is another leg lower that runs through around the middle of 2024. There are buyers out there, and there are now plenty of sellers too... but the market needs lower prices to clear under these mortgage rate and qualification settings.
Location, Location, Location
There are some clear discrepancies in market conditions that are masked by the national figures and, while some areas are deep in buyers' market terrain, others still see sellers with the upper hand. Here’s a quick rundown from (roughly) best to worst:
Calgary: Still the strongest market in Canada, and it’s not really close. The sales-to-new listings ratio there is running at a hot 79.3%, and prices have now rebounded more than 7% above the 2022 pre-correction high (Calgary’s correction was also among the most modest in the country). Don’t call us surprised, as the economy is firm, affordability is relatively favourable and people are moving there from other regions in large numbers.
Atlantic Canada: The region is also drawing in large inflows as affordability is relatively attractive, so it’s no surprise that markets like Moncton, Halifax and parts of PEI and Newfoundland & Labrador are still tight. Most of the region is still in sellers’ market territory, while prices are at or near cyclical highs.
Prairies: Outside of Calgary, markets from Edmonton to Winnipeg are sturdy. These markets aren’t as much showing strength as they are exhibiting stability in comparison to more significant weakness elsewhere.
Quebec: The province-wide sales-to-new listings ratio is a firm 63%, and prices in Montreal are only down less than 3% from their high.
British Columbia: Vancouver looks pretty balanced still and, while there are some signs of softening, we’ve seen much worse conditions in that market. Prices were up month-to-month in September and only down 2.3% from the recent high. The interior of B.C. (e.g., Okanagan) is seeing much weaker market conditions.
Toronto: The market balance has deteriorated quickly, with the sales-to-new listings ratio now in buyers’ territory and spring price momentum turning negative. New listings in the GTA have surged 46% in the past year, with a more pronounced inventory build on the condo side of the market (and there are plenty of completions still in the pipeline).
Southern Ontario: It’s no surprise that the hottest markets during the COVID boom—those fuelled by ultra-low interest rates and mass movement out of the big city—are now seeing the biggest payback. Markets like London, Barrie and Niagara are in buyers’ market territory and prices in those regions (and similar locations) were still down more than 15% from their high even after the spring/summer bounce.
Cottage country: The once-in-a-generation demand boom is fizzling fast, and the over/under on when we see early-2022 cottage prices again should be measured in years, not months or quarters.