June 15, 2021 | 10:07
Canadian Existing Home Sales (May) — Out of the Fire, Into the Frying Pan
Canadian existing home sales fell 7.4% in seasonally-adjusted terms in May, continuing the pullback from extreme levels seen earlier in the year. For some perspective, even though sales are down almost 18% from their high, the current level of activity is still 33% stronger than the 10-year average. So, while we hesitate to call this a slowdown given that sales are still effectively at record levels if we ignore the absolute frenzy in recent months, here are a few reasons for the pullback:
Meantime, new listings fell 6.4% in May which, combined with the steeper sales drop, helped loosen the market balance again. The national sales-to-new listings ratio fell to 75.4% in the month, which is still a tight sellers’ market (especially at the national level). And, the inventory available for sale sat at just 2.1 months worth, near record-lows.
This continues to support strong price gains, with the MLS benchmark up a record 24.2% y/y. Shorter-term metrics point to still very strong, albeit fading somewhat, momentum (3-month annualized growth is 25.9%; May alone was 13% annualized). Interestingly, condo price growth has accelerated significantly, now up 10.6% y/y, or the first double-digit gain since mid-2018 (3-month annualized growth topped 25% in May).
Regionally, the general themes outlined above hold across most of the country, and the near-uniform nature of market activity (in what is usually a highly regionalized market) is still a key feature of this cycle. Indeed, 22 of 26 markets tracked by CREA saw sales fall in May, while all but one market saw the average transactions price up by double-digits from a year ago (sorry Thunder Bay). Among the tightest markets in the country on a sales-to-new listings basis are Okanagan and Kawartha Lakes (i.e., cottage country is still on fire).
In a separate release, Canadian housing starts rose to 275,900 annualized units in May, a still-high level that continues the torrid run of new construction activity. Over the past six months, starts have averaged a 280k annualized pace, the highest since the late-1970s. Multi-unit starts led the advance, while the Prairies and Atlantic Canada were especially strong.
The Bottom Line: Home sales have backed off from extreme levels seen in recent months, but current activity is still historically strong and fostering outsized price growth. We believe that sales activity will continue to gradually cool in the year ahead, but it’s going to take higher interest rates to soften the market in a meaningful way.