Canadian Housing “Mania” Is Reversing Its Unsustainable Spike: RBC

Canada’s largest bank thinks the real estate mania might be coming to an end, as conditions loosen. The market is still very tight, according to RBC senior economist Robert Hogue. However, buyer demand is falling much faster than new inventory. April reported the third consecutive month where buyers dropped out of the market faster than sellers. If this continues much longer, it’s going to take the steam out of the market very quickly.

Canadian Real Estate Mania Has Toned Down

Canadian real estate markets are still very busy, but the market is now past the fever pitch, as sales begin to slow. The bank points to home sales, which fell for the first time in five months.

The seasonally adjusted annual rate (SAAR) of home sales fell to 731,600 units in April, down 12.5% from a month before. The pull-back was relatively widespread, with Kitchener (-24.5%), Hamilton (-23.5%), and Ottawa (-22.4%) leading lower. Though a few more affordable markets did climb a little. 

“Canada’s housing mania toned down a notch in April as home resales reversed their clearly unsustainable spike of the previous two months,” said Hogue. 

Fewer People Are Listings Homes For Sale

Buyers aren’t the only market player slowing, sellers are as well. RBC data shows SAAR new listings reached 976,500 units in April, down 5.4% from a month before. Once again, this appears to be a widespread occurrence across the country. However, the decline in new listings was much smaller than the drop in sales. This has led to some market pressures eassing.  

Canadian Home Buyers Are Dropping Faster Than Sellers  

Hogue still thinks the market is tight, but demand-supply conditions are beginning to improve. He points to the SNLR which dropped to 75% in April, down from 81% in March. This was the third straight month the SNLR has declined, but once again it’s still very high. Whether the market can stop such a rapid decline that’s already begun is another story though.

Home prices are still rising very sharply, which may be why sellers are starting to drop out of the market. The country’s composite benchmark price (the price of a typical home across Canada) jumped $17,000 (2.4%) in April. Over the past year, home prices at the national level increased by $135,000 (23.1%). Home prices are rising faster, while fewer buyers come to market.

“It may be an early sign that some buyers are reaching their limit to engage in bidding wars,” he said. “Soaring property values have significantly raised the bar for those contests. Yet, for now, prices continue to escalate.”  

That may seem like a warm take, but it’s actually an interesting point. The market is still very tight, but conditions are beginning to loosen — not tighten. Price growth continues to accelerate even faster though. When demand falls and prices rise, the market is operating on momentum. Now we’re all waiting to see if the engine can rev back into a higher gear, or it will fizzle out. 

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