May Was Another Sleepy Month For Housing

The Canadian Real Estate Association (CREA) announced today that national home sales fell 0.6% in May, remaining slightly below the average of the past ten years. Actual (not seasonally adjusted) monthly activity was 5.9% below May 2023. 

With the Bank of Canada rate cut on June 5, housing activity will likely perk up in the coming months. The central bank will likely reduce the overnight policy rate from 4.75% to 3.0% by the end of next year. While interest rates will remain above pre-pandemic levels, there is pent-up demand for housing, and activity will surely rise over the next year

New Listings 

The number of newly listed homes was up in May, though only by 0.5% monthly. Slower sales amid more new listings this year have increased the number of homes for sale across most Canadian housing markets.

As of the end of May 2024, about 175,000 properties were listed for sale on all Canadian MLS® Systems, up 28.4% from a year earlier but still below historical averages.

“The spring housing market usually starts before all the snow has melted, somewhere around the beginning of April, but this year I believe a lot of people were waiting for the Bank of Canada to wave the green flag,” said James Mabey, Chair of CREA. “That first rate cut is expected to bring some pent-up demand back into the market, and those buyers will find there are more homes to choose from right now than at any other point in almost five years.”

With sales down slightly and new listings up slightly in May, the national sales-to-new listings ratio eased to 52.6% compared to 53.3% in April. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions. There were 4.4 months of inventory on a national basis at the end of May 2024, up from 4.2 months at the end of April and, looking past the volatility at the onset of the COVID-19 pandemic, the highest level for this measure since the fall of 2019. The long-term average is about five months of inventory.

Home Prices

The National Composite MLS® Home Price Index (HPI) dipped 0.2% from April to May. 

Regionally, prices are generally sliding sideways across most of the country. The exceptions remain Calgary, Edmonton, and Saskatoon, where prices have steadily ticked higher since the beginning of last year.

The non-seasonally adjusted National Composite MLS® HPI stood 2.4% below May 2023. This mostly reflects the price surge that started last April and hasn’t been repeated in 2024.

Bottom Line

Housing activity will gradually accelerate over the next year as interest rates continue to fall. The Bank of Canada was the first major central bank to ease monetary policy. While there has been some concern regarding the impact on the Canadian dollar of repeated easing by the Bank with the US Federal Reserve on hold, the divergence may be smaller than expected. Recent US inflation data showed a meaningful improvement, suggesting the Fed could cut rates two times before the end of the year. Moreover, movements in the loonie have little near-term impact on inflation. 

The Canadian economy is far more interest-sensitive than the US, and the relative underperformance of our economy is the largest since 1965. Further rate cuts by the Bank of Canada are warranted.

Source: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

Homebuyers Cautious As New Listings Surge In April

The Canadian Real Estate Association (CREA) announced today that national home sales dipped in April 2024 from its prior month, as the number of properties available for sale rose sharply to kick off the spring housing market.

Home sales activity recorded over Canadian MLS® Systems fell 1.7% between March and April 2024, a little below the average of the last ten years.

New Listings 

The number of newly listed properties rose 2.8% month-over-month. 

Slower sales amid more new listings resulted in a 6.5% jump in the overall number of properties on the market, reaching its highest level just before the onset of the COVID-19 pandemic. It was also one of the largest month-over-month gains, second only to those seen during the sharp market slowdown of early 2022.

“April 2023 was characterized by a surge of buyers re-entering a market with new listings at 20-year lows, whereas this spring thus far has been the opposite, with a healthier number of properties to choose from but less enthusiasm on the demand side,” said Shaun Cathcart, CREA’s Senior Economist.

Bottom Line

With sales down and new listings up in April, the national sales-to-new listings ratio eased to 53.4%. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

There were 4.2 months of inventory on a national basis at the end of April 2024, up from 3.9 months at the end of March and the highest level since the onset of the pandemic. The long-term average is about five months of inventory.

“After a long hibernation, the spring market is now officially underway. The increase in listings is resulting in the most balanced market conditions we’ve seen at the national level since before the pandemic,” said James Mabey, newly appointed Chair of CREA’s 2024-2025 Board of Directors. “Mortgage rates are still high, and it remains difficult for many people to break into the market, but for those who can, it’s the first spring market in some time where they can shop around, take their time and exercise some bargaining power. Given how much demand is out there, it’s hard to say how long it will last.

The upcoming CPI data for April, released on May 21, will be crucial for the Bank of Canada. Given the strength in the April jobs report, the Bank is likely to hold off cutting interest rates until July.

Source: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

Recent Signs Show Housing Activity Will Strengthen Meaningfully In April

The Canadian Real Estate Association (CREA) announced today that national home sales for March were roughly flat, while new listings fell and prices stagnated. CREA analysts are confident that recent activity will harken stronger housing markets for the rest of this year. 

There is significant pent-up demand for housing owing to rapid population growth and first-time homebuyers’ fears that prices will rise sharply once the Bank of Canada cuts interest rates. Moreover, Ottawa has been handing out goodies for first-time buyers–leaking what’s to come in the April 16 federal budget. The Finance Minister has already announced the resumption of 30-year amortization on insured mortgages for first-time buyers of new construction. While this is less than meets the eye, in that pre-sales typically require a 20% deposit, the homebuilders’ association is pretty excited.

In addition, Ottawa has eased restrictions on the RRSP Home Buyers’ Plan, allowing F-T buyers to withdraw $60,000–up from $ 35,000 (never mind that the $35K ceiling is hardly ever broached)–with 5 years until repayments must begin, up from two years.

Ottawa is also providing assistance to at-risk homeowners, telling lenders to work with these households to lower payments “to a number they can afford, for as long as they need to” by allowing longer remaining amortizations. The Department of Finance is encouraging lenders to begin working with these at-risk households two years before scheduled renewals. The unintended consequences of this could be significant. For example, what happens to the mortgage-backed securities market and other investors in mortgages? Also, this reduces competition by discouraging refinancing and could raise the cost of borrowing for all participants. 

Ottawa has never been very good at considering the second-order effects of their actions. A case in point is the decision to markedly increase immigration (for lots of good reasons) without considering where all of these new people would live. This has led to a massive housing shortage and the least affordable housing in Canadian history. Now that Trudeau’s approval ratings have suffered, they are scrambling to remediate, but increasing demand for housing is obviously not the answer. 

There will be more news on Tuesday when I dissect the federal budget’s housing initiatives. The more government money spent, the more money borrowed, which will only raise interest rates from what they will otherwise be. 

Back to the March data, national home sales edged up a mere 0.5% month-over-month, although activity rose 1.7%. That was a much smaller gain than those recorded in the previous two months, although a part of that does reflect a mostly inactive market during the Easter long weekend.

New Listings 

The number of newly listed homes declined by 1.6% month-over-month in March. “While the official March monthly numbers were quite flat, anecdotal evidence from late last month and early April suggests activity is ramping up,” said Larry Cerqua, Chair of CREA.

With sales edging up and new listings falling in March, the national sales-to-new listings ratio tightened to 57.4%. The long-term average is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions, with readings above and below this range indicating sellers’ and buyers’ markets, respectively.

At the end of March, there were 3.8 months of inventory nationwide, unchanged from the end of February. The long-term average is about five months of inventory. 

New listings rose sharply in late March and early April–good news on all fronts.

The actual national average home price in March was up 2% year-over-year from a markedly depressed level. The MLS Home Price Index was roughly unchanged, down markedly from its early 2022 peak when the central bank’s overnight policy rate was a mere 25 basis points before they started hiking rates in March, two years ago.

Bottom Line

With pent-up demand for housing rising with every rent increase, the spring housing season is likely to be robust, even before the central bank cuts interest rates. We believe the BoC will begin reducing the policy rate in June or July, depending on the next two CPI reports. March inflation data will be released on Tuesday (a big day for economic news), and April data will come out on May 21st. The next Bank of Canada decision date is June 5th. 

Source: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres