Canadian real estate sales are getting weaker and inventory is rising, but don’t let that get in the way of a solid narrative. Canadian Real Estate Association (CREA) data shows existing home sales fell in February. The same day also shows new listings climbing, essentially producing fundamentals that indicate a weaker market. That didn’t have much influence on exuberant buyers who reinforced prices, despite the weakness. That’s led one of the country’s largest banks to conclude the market is near its bottom, and activity is likely to surge as soon as rates fall.
Canadian Existing Home Sales Slip After Months of Recovery
Canadian existing home sales broke the winning streak, and reversed course last month. Seasonally adjusted sales fell 3.1`% in February, but they remain 19.7% higher than last year. Though the first two months of last year were the slowest in the past decade, reminds BMO chief economist Douglas Porter.
He believes the monthly indicator is the bigger takeaway, which has been on a steady climb higher recently. The sudden surge of bond yields and decline in existing home sales are “…suggesting that it’s not going to be a one-way trip north for housing activity from last year’s soggy levels,” he warns.
More Canadian Real Estate Sellers Are Showing Up To Market
Existing home inventory continues to climb. Seasonally adjusted monthly growth came in at 1.6% in February, marking a 24% increase from last year. Unlike sales, new listings were at a healthy level for the annual comparison.
Fewer buyers and more inventory helped ease the sales to new listings (SNLR). “The ratio dipped slightly in February to 55.6%, almost right in the middle of what’s viewed as a normal range (45% to 65%),” explains Porter.
The SNLR tends to trend higher in the winter, when the market is relatively illiquid. A ratio in balanced territory ahead of Spring activity may indicate there’s less pent-up demand ready to pull the trigger than the industry anticipates.
Market Bottom Is Near, Rate Cuts Likely To Drive Activity Surge
Even with these weaker indicators, the bank did see one factor that might trigger buyers—price growth. “Despite the mild loosening in conditions last month (sales down, listings up), prices stabilized in February after a five-month skid,” Porter writes
Adding, “Even with the latest moderate pullback in sales, the past few months of data suggest the housing market is finding a bottom.”
A remaining frothy indicator is at play here—sentiment. Just one month of rising bond yields was able to cool demand. However, the buyers in the market were exuberant enough to not consider a loosening market in their bids. A factor that reinforces the bank’s conclusion—the market is ready to take off as soon as interest rates are cut.
Probably not what the Bank of Canada wants to hear.
