May 15, 2023 | 09:49
Canadian Housing—It's Baaaaack... Partly
Canadian housing activity found a serious spark in April, with both home sales and new homebuilding rebounding from somewhat soggier levels in the opening months of 2023. Existing home sales jumped 11.3% in seasonally adjusted terms from the prior month. Aside from the snapback from the lockdowns in 2020, that's the largest monthly rise since 2009. Yet, because of last year's deep swoon, sales were still down almost 20% from a year ago, and a bit lower than the pre-pandemic norm for the month. New listings only crept up 1.6% m/m, and are still 26% below year-ago levels, tightening the market significantly. Thus, the ratio of sales to new listings jumped to 70.2, which is historically strong and well above a more normal range of 50-to-60. In a similar vein, the months of inventories fell to 3.3, tighter than the 5-month norm. CREA suggested that there are early indications from May that new listings are now responding to a healthier market.
With the sales rebound far out-pacing the comeback in listings so far, prices are firming after a 16% national correction. The HPI rose 1.6% m/m, the second consecutive increase following a steep 11-month descent. Prices are still down 12.3% y/y on this measure, with the vast majority of cities well down from a year ago. Exceptions to that downward price trend include Calgary, St. John's and Saskatoon. Note that average transactions prices are now down by a much more moderate 3.9% y/y nationally, as the mix of homes sold is shifting to pricier options.
Separately, CMHC reports that housing starts popped 22% in April to a solid 261,600 units. That marks the highest level of starts since last November, and brings them back up to near last year's sturdy average pace.Thus, after appearing to cool in the opening months of the year, new home building is also showing some signs of surprising resiliency. April's strength does come with at least one caveat, as the bounce was powered by multiple units, which posted one of the strongest months on record.
Bottom Line: The snapback in sales, the firming in prices, and the bounce in starts in April all suggest that the housing market has found a floor. Some clarity on the interest rate front has no doubt played a major role, as has the underlying resiliency of the economy itself (highlighted by the persistent strength in jobs). As we have often pointed out, if housing—the most interest-sensitive and cyclical sector of the economy—is showing a renewed pulse, it begs the question of whether monetary policy is nearly tight enough. While we don't look for further rate hikes by the Bank of Canada, renewed strength in housing certainly aims the risks squarely in that direction.