August 15, 2022 | 10:05
Canadian Existing Home Sales (July) — Onward and Downward
Canadian home sales fell 5.3% in July (seasonally adjusted), or 29.3% from a year ago. That leaves activity back in the pre-COVID range, or roughly 40% below the peak of the demand-side blowout seen last year. Unadjusted, it was the quietest July for sales since the financial crisis in 2020.
Meantime, new listings were similarly down 5.3% in the month, which helped keep the market balance from deteriorating further. That said, the flow of listings is consistent with normal pre-COVID activity, and right in-line with the 10-year average.
That combination left the market balance steady in July, with the sales-to-new listings ratio holding at 51.7%. At the current run rate of sales, that leaves 3.4 months’ worth of inventory on the market, which is up from 1.7 at the recent lows, but still lower than we were used to before the pandemic (readings in the 4 to 6 range were common).
Overall conditions have deteriorated enough to keep pulling down prices, with the MLS benchmark index down 1.7% in July, and now 6% from the February peak. Keep in mind that the headline HPI often lags reality a bit, and can understate localized moves—we clearly see some markets down around 15%-to-20% from their high, which would imply early-2021 pricing (more colour below). While the benchmark price is still up 10.9% y/y, the average transactions price is now down 4.4% y/y. The overall dollar volume of transactions has now been cut by a third versus 2021, which is going to bite deeply into growth.
So, where is the correction playing out? Almost everywhere, but to varying degrees. Here are some notables:
Southwestern Ontario is feeling it hardest, with markets like Kitchener-Waterloo and London (as just two examples) down roughly 15% from their high already. These exurban/rural areas are precisely the ones we flagged as most at risk, so this is playing out right as expected.
The Greater Toronto Area is also under stress, with the headline HPI down 7% from February. The single-family segment is down 9%, while condos have seen a minimal pullback, for now (listings seem to be building). Suburban single-family is also getting crunched relatively hard.
Vancouver prices have now fallen in four consecutive months, to a somewhat lesser degree than those in the GTA. A similar story is playing out in that part of the country, with the core holding in better than markets further out.
Montreal has been more immune, but is not escaping the downturn with prices now falling in two consecutive months. This market never hit the extreme froth seen in the GTA, but was certainly stretched by Montreal’s standards, and is now too correcting.
We view Alberta as the market most able to weather this storm because it had already stagnated for a number of years before the pandemic, never saw the same froth as Ontario, and is now supported by near-$100 oil and population inflows from other regions. But, in a demonstration of the power of higher interest rates, even Edmonton and Calgary have been subject to a flattening (Calgary) or decline (Edmonton) in prices despite still-solid sales activity.
All told, this correction is well on its way, and is so far playing out very much as expected in terms of intensity, timing and regional distribution. Recall that the BoC hit the market with a 100-bp rate hike in the middle of July, so these figures don’t fully reflect that move. We continue to see another 100 bps of tightening through the remainder of the year, which should keep this housing market adjustment running into 2023. Onward and downward for now...