Canada’s Major Real Estate Markets Are Seeing Inventory Return To “Balanced”

Canadian real estate inventory is balanced for the level of demand, now that stimulus is gone. Canadian Real Estate Association (CREA) data shows the sales to new listings ratio was balanced in July. It remained flat from the month before, but down more than 30 points from the peak reached earlier this year. The market hasn’t technically crashed yet, but the feeling of going back to “normal” volumes might feel that way to some. 

Sales To New Listings Ratio 

The SNLR is the industry’s preferred method to determine if a market is hot or not, and looks at absorption. It’s a straightforward 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 home prices are to rise. Lower ratios mean the exact opposite, and tend to indicate prices will fall. Banks like BMO and RBC have both said it has a fairly accurate track record, tending to lead prices by about 3 months.   

There are guidelines on the read and you’re probably more 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 stall. Above 60% is a sellers’ market when prices rise, and below 40% is buyers’ market, where prices fall. 

Once again, these are just guidelines with a few important things to keep in mind. Velocity is one of the more important caveats, since a market can often act like the ratio it’s rushing for. That is, you can see prices rise in a buyers’ market if the ratio is rising quickly, or prices fall in a sellers’ market, if the ratio is falling fast. Sentiment is the ultimate factor here, and it changes faster than markets can respond. The SNLR is a great supplement to market analysis, but shouldn’t be your only factor when reading it. Now, onto the data. 

Canadian Real Estate Is A Balanced Market

The national SNLR is firmly in balanced territory, after printing some of the tightest conditions ever this year. The seasonally adjusted SNLR was 51.7% in July, flat from the month before. Despite being unchanged, this is way down from the 89% it read back in February, when prices were rising tens of thousands per month. While the market is balanced, prices are falling tens of thousands per month, indicating it might just be making a stop before heading lower. 

Canadian Real Estate SNLR

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

Source: CREA; Better Dwelling.

Halifax, Calgary, and Winnipeg Are The Tightest Markets

Not all Canadian real estate markets are seeing more tempered demand. The ratio was still high in Halifax (73.9%), Calgary (68.1%), and Winnipeg (68.1%). Those markets topped the list for major real estate markets across Canada. 

At the bottom of the list are Southern Ontario markets. 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, thus cutting it off from our list of major cities. That was a little odd considering how hot the Niagara market was just months ago. 

Greater Toronto (41.3%) was the third lowest SNLR in July, nearly falling out of balanced territory. Recent price drops in the region might have people thinking it’s even lower, but it isn’t at the balanced level yet.  

Montreal Is Back Into A Sellers’ Market, Vancouver Is Balanced

Montreal and Vancouver didn’t fall in the extremes of the list, but they’re heading in opposite directions. Montreal’s SNLR came in at 63% in July, rising a whopping 7.1 points from the month before. The market popped back into sellers’ territory. 

Meanwhile in Vancouver, the SNLR was 45.9% in July, down 2.1 points from the month before. The market is currently balanced, but prices are making a swift move lower according to board data.  

Only a minority of markets saw the SNLR rise last month, but the anecdotal talk for that reason is interesting. Despite eroding financial conditions, a number of agents have said sellers are waiting to list in the fall or next Spring.

Some of those units have since been turned into rentals in the meantime, capitalizing off strong rent growth. However, with credit tightening even further, prices are currently dropping by years worth of rent per month. A lot would need to change between now and September for conditions to dramatically improve.