FURTHER REOPENING SENDS HOME SALES INTO THE STRATOSPHERE
SUMMARY
Home sales activity surged again in another sign of Canada’s buoyant ongoing rebound from COVID-19 lockdowns. With re-openings continuing across the country, new listings registered their strongest-ever month of July in 2020, while existing home sales reached their highest level in any month in recorded history. On a m/m seasonally adjusted basis, Canadian home purchases rose by 26%, while new listings climbed by a healthy 7.6%. That pushed the national sales-to-new-listings ratio to 73.9% (sa)—the highest since 2002 and consistent with demand-supply conditions strongly tilted in favour of sellers. Consequently, the composite MLS Home Price Index (HPI) rose by 7.4% (nsa y/y)—the strongest gain since 2017.
Canada’s largest centres tended to witness the steepest sales increases. Purchase volumes were up by more than 40% in both Toronto and Vancouver, with Montreal registering a 39% advance (all sa m/m). Ottawa, a number of cities in Southern BC, and Ontario’s Greater Golden Horseshoe (GGH) region also enjoyed strong sales gains. Purchases were up across municipalities in Saskatchewan and Alberta as well, albeit at a more moderate pace.
In July, 18 of the 31 centres for which we maintain data posted sales-to-new-listings ratios consistent with sellers’ market territory. While new listings in many centres have recovered to above pre-lockdown levels, 14 of the 18 centres in sellers’ market territory have yet to return to February levels.
MLS HPI gains were positive in most centres, especially in larger metropolitan areas which had remained in stricter phases of lockdown for longer periods of time. Most cities in the GGH maintained price growth of more than 10% y/y, while Southern BC municipalities witnessed some of the strongest gains in nearly two years. Ottawa (+18% y/y), Montreal (+14% y/y), and Moncton (+12% y/y) posted record growth in home prices despite the recovery of new listings to pre-lockdown levels.
IMPLICATIONS
Solid gains were expected as most regions entered the final stage of reopening in July and following early releases from local real estate boards, but the strength of the rebound continues to surprise. Nationally, both unit sales and new listings have surpassed pre-virus levels, with purchases now a hefty 17% higher than five months ago. That strength, coincident with a labour market yet to return to its pre-pandemic vibrancy, suggests some pent-up demand remains that could continue to be released in the coming months, even as the pace of reopening eases. The effects of more stringent mortgage borrowing conditions introduced by the CMHC on July 1st may eventually dampen mortgage demand, though there is little evidence of that to date.
New listings’ slower pace of recovery versus home sales is a trend worth monitoring in the coming months. Should it persist over future periods, further upward pressure on house prices can reasonably be anticipated.
The strength of the ongoing rebound notwithstanding, potential downsides to the outlook identified earlier remain very much at play. These include a second wave of the virus, persistent weakness in population growth, and risks related to timing the withdrawal of mortgage and tax payment deferrals. All of these factors could undermine continued gains in the housing market as well as the recovery in the broader Canadian economy.
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