CANADA HOUSING MARKET: RECOVERY TRULY UNDERWAY OR FALSE START?
SUMMARY
Both national home sales and new listings increased in June, and housing resale conditions tightened as sales increased at a faster pace (3.7% sa m/m) than listings (1.5%). Consequently, the sales-to-new listings ratio—a market tightness indicator—rose from 52.8 to 53.9% from May to June, still within the balanced national market range (of 45% to 65%), and sightly below the 55% long-term average. This tightening in resale market conditions is also reflected in the modest decline in months of inventory, which edged down from 4.3 in May to 4.2 in June. This indicator is still below its long-term average of 5.3 (pre-pandemic). And as usual and expected, this inventory situation varies greatly across provinces, from a few days above its long-term average in British Columbia and Ontario, to 5 and 5.8 months below average in Nova Scotia and New Brunswick respectively.
It was an even split between markets that saw tightening and easing conditions from May to June based on their sales-to-new listings ratio.
About 3/4 of the markets we track witnessed an increase in their sales from May to June. Five markets, all in Ontario—Thunder Bay, Kingston, Brantford, Barrie and Peterborough—witnessed above 15% growth in sales from May to June. This helped push their sales-to-new listings ratio up from May to June but not sufficiently to change their market conditions’ status, being still inside balanced territories for the first three of these centres, and within buyers’ territory for the last two. Sales were stable from May to June in Lethbridge and declined in 7 markets we track, with the largest observed for Charlottetown (-15.7% sa).
Despite the rise nationally, newly listed properties declined in more than half of the markets we track. Sharpest declines in this indicator from May to June were observed for London (-34% sa m/m) and Saint John (NB; -16.4%), while above 10% monthly increases in this indicator were observed in Moncton (15.5%) and Fraser Valley (Abbotsford; 12.1%). Consistent with the stronger national increase in sales than for new listings—hence in its sales-to-new listings ratio—the number of markets in sellers’ favouring conditions rose from 6 to 10 from May to June. The sales-to-new listings ratios moved from balanced to sellers’ favouring conditions in Quebec City, Calgary, Edmonton, Halifax, London and Sudbury. The number of buyers-favouring markets fell from 8 to 5 over this period.
House prices, as measured by the MLS Home Price Index (HPI), edged up 0.1% from May to June (sa m/m). The price increase for the single-family segment, at 0.2% (sa m/m), was partially offset by an equivalent decline in the price of apartments, while this price index was unchanged for townhouses over this period. In June, the composite HPI was down 3.4% from the same month in the previous year, with all unit types contributing to this year-to-year decline, with the largest decline observed for two-storey single-family homes at 3.6%.
IMPLICATIONS
Are resale markets now on the recovery path we were expecting? Or was June’s performance simply a hiccup as the one witnessed in December and January of this year, which we hesitated to qualify as the start of the recovery given the uncertainty about the future inflation path and the fact that we were still far from the expected start for the easing of the monetary policy rate. Nevertheless, we now feel comfortable to say that we have reached the doorstep of this awaited recovery and likely even opened its door, but still too soon to say we made a full entry in this room.
Supporting this view is the improvement in conditions as reflected by the rise in the sales-to-new listings ratio in most markets, which coincides with the start of the easing cycle by the Bank of Canada for its policy rate. This single decline is likely to have a modest impact on mortgage rates—as it was mostly expected to occur over the June-July period—and affordability for newly purchased properties. But this decision likely contributed to June’s performance through the expectations channel from the central bank’s communications, which signalled that inflation concerns have lessened, raising confidence about the outlook for economic and households’ income conditions, hence pushing housing demand up. The still elevated households’ savings rate (from its pre-pandemic historical average) combined with reduced concerns about the future, is also supporting housing demand. Finally, the average resale market conditions’ status moved up towards sellers’ favouring conditions.
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