Canada’s major real estate markets see stocks returning to ‘equilibrium’

Canadian housing inventory is balanced for the level of demand, now that the stimulus has subsided. Canadian Real Estate Association (CREA) show that the sales-to-new listings ratio was balanced in July. It remained stable compared to the previous month, but down more than 30 points from the peak reached earlier this year. Technically, the market hasn’t collapsed yet, but the feeling of returning to “normal” volumes might seem the same to some.

Sales to new listings ratio

The SNLR is the industry’s preferred method of determining whether a market is hot or not, and examines absorption. It’s a simple indicator that does what it sounds like – it compares the share of sales to new listings. The higher the ratio, the tighter the market and the more likely house prices are to rise. Lower ratios mean the exact opposite and tend to indicate that prices will go down. Banks like BMO and RBC both said they have fairly accurate track records, tending to push prices up around 3 months.

There are reading guidelines and you are probably most familiar with the labels used to describe these markets. A balanced market is when the SNLR is between 40% and 60% and price growth begins to stagnate. Above 60% it’s a seller’s market when prices are rising, and below 40% it’s a buyer’s market, where prices are falling.

Again, these are just guidelines with a few important things to keep in mind. Velocity is one of the most important caveats, as a market can often act as the ratio it is rushing towards. In other words, you can see prices rise in a buyer’s market if the ratio is rising rapidly, or prices fall in a seller’s market if the ratio is falling rapidly. Sentiment is the ultimate factor here, and it changes faster than the markets can react. The SNLR is a great addition to market analysis, but shouldn’t be your only factor when reading it. Now let’s get to the data.

Canadian real estate is a balanced market

National SNLR is firmly in balanced territory, having printed some of the tightest conditions on record this year. The seasonally adjusted SNLR was 51.7% in July, stable from the previous month. Although unchanged, this is down from 89% in February, when prices rose by tens of thousands per month. While the market is in balance, prices are falling by tens of thousands per month, which indicates that it might simply stop short of falling.

Canadian real estate SNLR

The seasonally adjusted ratio of sales to new listings for major Canadian real estate markets with over 400 sales in June.

Source: CREA; Live better.

Halifax, Calgary and Winnipeg are the tightest markets

Not all Canadian real estate markets are experiencing more subdued demand. The ratio was still high in Halifax (73.9%), Calgary (68.1%) and Winnipeg (68.1%). These markets topped the list of top real estate markets in Canada.

At the bottom of the list are markets in southern Ontario. The SNLR in Windsor-Essex (35.6%) for July makes it the only major buyer’s market. Niagara (32.5%) is the only other market below 40%, but it fell below 400 sales in June, cutting it off our list of major cities. It was a little odd considering how hot the Niagara market was just a few months ago.

Greater Toronto (41.3%) was the third weakest SNLR in July, falling almost out of balanced territory. Recent price declines in the region might suggest that it is even lower, but it is not yet at the equilibrium level.

Montreal is back in a seller’s market, Vancouver is balanced

Montreal and Vancouver are not at the extremes of the list, but they are heading in opposite directions. Montreal’s SNLR reached 63% in July, up 7.1 points from the previous month. The market has returned to seller territory.

Meanwhile, in Vancouver, the SNLR was 45.9% in July, down 2.1 points from the previous month. The market is currently balanced, but prices are falling rapidly according to council data.

Only a minority of markets saw SNLR rise last month, but the anecdotal talk for this reason is interesting. Despite eroding financial conditions, a number of agents said sellers are waiting to sign up next fall or spring.

Some of these units have since been turned into rentals in the meantime, taking advantage of strong rental growth. However, with the even greater credit crunch, prices are currently falling by years of rent per month. A lot should change by September for conditions to improve significantly.