Canadian real estate is cooling quickly after higher rates derailed its record run. A new research note from BMO shows the national sales to new listings ratio (SNLR) fell in April. The indicator measures supply relative to demand and acts as a leading price indicator. Canadian real estate can expect prices to trial the country’s biggest market, which may see price growth disappear within 3 months, according to BMO.
Canadian Real Estate Markets Have Almost Balanced Inventory
The sale to new listings ratio (SNLR) is a method of determining relative inventory levels. It’s the share of homes sold to the number of newly listed homes for sale. A higher SNLR means tighter inventory levels relative to buying activity.
Data from the Canadian Real Estate Association (CREA) shows a sudden drop in the ratio. The SNLR fell to 66% in April, considerably less than the average of 76% over the past year. It’s a healthy decline, which BMO says is on the “cusp of a balanced market.”
A sudden shift from a hot to balanced market is at the national level—however, the market with the lowest ratio is in Greater Toronto. Surprisingly, one of the world’s biggest real estate bubbles has the weakest relative demand in Canada.
Toronto Real Estate Is Canada’s Biggest Market, and It’s Cooling Fast
Greater Toronto real estate is one of the key markets to watch, suggests BMO. Canada’s biggest real estate market saw its seasonally adjusted SNLR fall to just 45% in April, close to the bottom of a balanced market and getting closer to a buyer’s market. The bank’s research shows the average SNLR over the past 12 months is 70% for the region.
Canadian Home Price Growth Can Disappear Within 3-Months
The industry uses the SNLR to gauge home price growth, and BMO confirmed its accuracy.
“Decades of history show that this ratio is an excellent leading indicator for average transaction prices, leading prices by about three months,” said BMO chief economist Douglas Porter.
“…what the ratio is now telling us is that prices are about to go from 20%+ gains to a sudden stall. And that’s assuming the sales/listings ratio doesn’t fall further in coming months.”
With interest rate hikes only halfway to neutral, the SNLR falling further is likely. Early this week, economists for several financial institutions warned investors the market slowdown is just getting started.
you mean SNLR is looking like it might turn into a Buyers Market, not sellers – right?
Prices have already dropped at least 10% in most markets in ontario.
If prices fall another 10% it only wipes out gains from the beginning of this year.
It’s quite possible , as is evident in the 40% drop in Cambridge, that prices in many markets will fall more than 20% before too long.
Prices have already dropped at least 10% in most markets in ontario.
If prices fall another 10% it only wipes out gains from the beginning of this year.
Prices could easily drop by more than 20% .
This is quite literally just the beginning. The fact that prices have reacted so quickly to rate hikes (the usual lag time is 14-18 months) does not bode well for the stature of the market. We will likely see a 2-3 year long downtrend in prices with a bottom around roughly 50% of what they started at this year.
So what? Prices can drop 35% and we’re still at 2020 levels. Guys this thing was a bubble in 2015 already. Blame the BoC for ruining lives keeping population down and bringing in immigrants for instant tax dollars and votes. Simple don’t have kids and marry because it’s so expensive and we’ll bring in the immigrants which is instant cheap labor and tax money. Better than u starting a family 🤫
Correction not “immigrant”, rather say, refugees. In general, we are all classified as immigrants but I myself is not taking advantage of the money. I do pay a lot of taxes and yearly I still have balance owing to settle. Peace….
An Oakville Agent I spoke to yesterday feels prices are dropping now a bit but by June/July the will pick up again because there is a backlog of 400,000 immigrants waiting to get into Canada. Many of them of Asian background and he being Asian himself says they don’t rent, only buy! I hope prices come down but the government seems to be doing everything they can to keep them inflated, eg. Bank of Canada saying they will be cautious not to allow rate hikes to crash housing market, and immigration into the country at high rates when the infrastructure and housing is not there to support it.
Most immigrants will not be able to afford real estate in Canada. At least not the ones that we need in Canada: skilled trades.