August 15, 2023 | 10:12
Canadian Existing Home Sales (July) — Cool Summer
Canadian housing activity is balancing, with recent Bank of Canada rate hikes taking some early-year momentum out of the market.
Existing home sales dipped 0.7% in July (seasonally adjusted), but were still up 8.7% from weak year-ago levels when the market was sliding into a correction. Meantime, new listings popped 5.6% in a fourth consecutive month of solid seasonally-adjusted flows. While listings are now flat from a year ago, the combination of ebbing sales momentum and more resale supply has loosened the market balance. The sales-to-new listings ratio fell to 59.2 in July, down from as high as 68% in April when the BoC moved to the sidelines. This reflects very balanced conditions consistent with the 10-year average, and not leaving either sellers or buyers with a major upper hand. In fact, relative to 2019 levels (i.e., pre-COVID norms), both sales and new listings are roughly right back to that mark.
In this environment, price momentum has slowed after rebounding strongly through the spring. The MLS Home Price Index rose 1.1% in July, a step down from gains seen through the spring. From a year ago, the benchmark price was still down a modest 1.5%, while the average transactions price rose 6.3% (flattered by stronger sales growth in some expensive markets). From peak early-2022 levels, the benchmark price is still off 10%, but has now rebounded just under 7% from the March 2023 low.
Regionally, the story is pretty consistent across most markets. That is, the price correction found a floor and rebounded to some extent as the BoC paused, but has now run into some chillier conditions with rates moving higher again. Some notables: Calgary remains arguably the strongest market in Canada, with the sales-to-new listings ratio still running at a hot 82%. We’ve argued all along that this market was cheap heading into the pandemic boom, and remains cheap coming out of it. Prices there continue to run at double-digit annualized pace, and are now 5% higher than the early-2022 high. In other words, while most of the rest of the country struggled through a correction, Calgary just powered ahead. At the other end of the spectrum, Toronto now has the lowest sales-to-new listings ratio among the major markets at 44%, after a strong wave of properties came for sales in recent months. Indeed, price momentum slowed meaningfully in July in the city, while some of the peripheral markets looked quite a bit stronger. Vancouver looks relatively balanced at this point, while Atlantic Canada continues to see sturdy conditions alongside very strong population flows.
Where do we go from here? While the Bank of Canada might now be on hold, the July CPI report will keep the decision very much live. And, at minimum, the inflation backdrop still argues for interest rates to stay elevated into next year. In other words, meaningful near-term mortgage rate relief looks unlikely. Recall that in the spring, market psychology was helped by the BoC’s pause, while the dive in shorter-term fixed mortgage rates, to well below the 5% mark, offered real relief. That’s not in the cards at this moment given that 5-year GoC yields are flirting with 16-year highs. All in, the headwinds of high mortgage rates and possible softening in the job market will be battling with the tailwind of robust demographic demand. We currently see the two playing to a near draw, with prices largely stagnating through the remainder of the year.