Canadian real estate just put an end to any doubt the bubble still has a little life in it. Canadian Real Estate Association (CREA) data shows home prices fell further in November. Soft sales and rising inventory continue to apply downward pressure on values. Owners rushing to sell at an unusual time helped drive the softest demand balance since the Great Recession.
Canadian Home Prices Continue To Fall, Nearly Back To 2021 Levels
Canadian real estate prices continue to roll back gains. The composite benchmark, or typical home, saw prices fall 1.7% (-$12,100) to $719,000 in November. It remains just 0.6% (+$4,300) higher than the same month last year. Being at February 2023-levels doesn’t sound that bad, but volatile markets require context.
Buy/sell, rent/lease residential &
commercials real estate properties.
Canadian Real Estate Prices
The composite benchmark price of a home across Canada.
Source: CREA; Better Dwelling.
Taking a look at the above chart, it almost looks like a middle finger to speculators. The first rate hike was announced in March 2022, marking the benchmark’s peak. Last month, a typical home was 16% lower than the record high. The market has now reversed the brief stint of exuberance from the January “pause.”
Home prices might be flat from last year, but they’re 3.8% lower than two years ago. At the current rate, only one more month would return prices to August 2021-levels. That is still a deeply unaffordable level, but it’s shocking to see how fast home prices are adjusting to higher interest rates.
Canadian Real Estate Prices Resume Fall From Peak
The percentage change in price after hitting the all-time high in March 2022.
Source: CREA; Better Dwelling.
Canadian Real Estate Just Saw The Softest November Since 2008
Falling demand and a sudden influx of sellers has created healthy inventory levels. MLS-reported home sales fell 0.9% to 29,900 homes in November. In contrast, the supply-side saw a 10.5% increase to 54,100 new listings over the same period. Buyers (demand) is disappearing while sellers (supply) is rising sharply.
Long time market followers may have noticed this is an odd situation for November. Not a whole lot of people are interested in selling their property during the holidays. If possible, they hold on until the Spring market when buyers come out of hibernation. Typically this leads to an elevated sales to new listings ratio (SNLR), and is totally normal in the winter.
That wasn’t the case. The sales to new listings ratio (SNLR) fell to 57.1% last month, 3.5 points lower than last year. Technically, this market is balanced but still unusual for this time of year. How unusual? The demand balance is the weakest for November since 2008, at the peak of the Great Recession.
A low rate shock at the start of the pandemic led to a speculative frenzy, displacing end users. Rate cuts are expected next year, potentially paving the path for the return of speculators. That would help restore some demand to this equation. However, rates aren’t expected to fall all that much. They certainly aren’t expected to return to pre-pandemic levels anytime soon.
That drastically changes the investment environment, which may not be as attractive for speculation. Over the next few months, we’ll see if speculators still like the market with elevated costs, or if prices will need to return to a level end-users can purchase.