Canada\u2019s real estate industry is a little overenthusiastic about last month\u2019s market data, according to one of the country\u2019s largest banks. A new BMO Capital Markets<\/a> report explains that weak sales and rising inventory persist, suggesting pricing will remain sluggish in the near term. The bank warned investors that real estate corrections are measured in years, not months.<\/p>\n The Canadian real estate industry reported a minor improvement in sales last month. Seasonally adjusted home sales made a monthly climb of 3.5% in May. However, the bank highlights an almost equal increase in new listings (+3.1%), leaving the sales-to-new listings ratio (SNLR) at a similar level.\u00a0<\/p>\n The SNLR is a fundamental indicator used by the industry to measure relative demand. When the ratio falls below 40% the market is said to be a buyer\u2019s market, where prices are expected to fall. It has a strong historical track record.\u00a0<\/p>\n \u201cSo, unsurprisingly, the key sales\/listings ratio barely improved from soft levels. And that suggests pricing will remain sluggish,\u201d explains Douglas Porter, Chief Economist at BMO.\u00a0\u00a0<\/p>\n It\u2019s worth noting that these are seasonally adjusted numbers being discussed. While May showed an improvement compared to April, in unadjusted terms home sales were 14% below last year. This indicates the month might be an improvement over April, but sales were worse than last May. But we digress, back to BMO\u2019s take.\u00a0<\/p>\n CREA, the organization that represents Canadian Realtors, suggested price declines may end soon. Their assumption is based on seasonally adjusted monthly sales rising, and slowing price declines in many markets. BMO argues the SNLR disagrees with that take.\u00a0<\/p>\n \u201cThe accompanying chart [above] smooths out that sales\/listings ratio over a three-month period. It\u2019s a good leading indicator for prices, and on that basis, things are still looking south,\u201d explains Porter.\u00a0\u00a0\u00a0<\/p>\n CREA suggests a turnaround may be forming. This was largely based on seasonally adjusted sales rising month-over-month, and price declines shrinking in some regions. If that sounds a little optimistic based on those two indicators, you\u2019re not alone.\u00a0<\/p>\n \u201cCREA made a point that the decline in prices may be ebbing. That may be correct, but the reality is that they are still ebbing,\u201d notes Porter.\u00a0<\/p>\n He reminds investors that prices have dropped for five consecutive months, are down over 3% from last year, and 17.5% below the record high hit 3 years ago. It takes a big leap of faith to counter that with a single month\u2019s increase in home sales, and smaller price drops.<\/p>\n \u201cAt that time [in 2022], we opined that bear markets in Canadian housing are measured in years, not months. The market balance measures agree,\u201d warns Porter.\u00a0<\/p>\n How long do Canadian housing corrections last? \ud83e\uddd0 #ToRe<\/a> #VanRe<\/a> https:\/\/t.co\/OwDJIOkjK5<\/a> pic.twitter.com\/9jwQg4XuYe<\/a><\/p>\n \u2014 Better Dwelling (@BetterDwelling) May 24, 2022<\/a><\/p><\/blockquote>\n It\u2019s unclear if Porter is referencing a specific report, but BMO produced a few around the 2022-peak. In one report, they found that historical corrections have taken between 2 and 15 years to run its course<\/a>, depending on severity. They also specifically noted that Ontario real estate prices resemble the \u201880s bubble<\/a>, which lasted 6 years from peak. Considering affordability has been stretched to one of the worst levels on record, ending as one of the shortest corrections on record would be surprising.\u00a0<\/p>\nCanadian Real Estate Demand Suggests Prices To Remain Sluggish\u00a0<\/strong><\/h2>\n
Canadian Real Estate Corrections Are Measured In Years, Not Months<\/strong><\/h2>\n
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