The national housing market continued to cool down in May with the number of sales and new listings dipping from April and March, according to the latest numbers from the Canadian Real Estate Association.
Their May report reveals the pandemic-fueled trends that have driven the market – such as demand for larger homes and urban flight – are starting to wind down. The number of homes trading hands decreased by -7.4% month over month, though remain 103.6% higher than at the same time in 2020. That follows the -11% drop recorded in April, further cementing March as the market’s peak month. Sales activity was down in 80% of all markets – though CREA points out that, from a historical perspective, it was still the strongest May of all time.
It’s Still Tough Out There for Buyers
While there are signs the market is starting to settle, buying conditions are still fiercely competitive: the number of new listings brought to market also declined by -6.4% last month, contributing to the ongoing supply-and-demand imbalance and putting the squeeze on buyers.
Bidding wars and multiple-offer scenarios are still prevalent in markets across the country, keeping prices on a boil. While CREA notes the pace of price growth has started to calm in comparison to the first half of 2021, home values are up 38.4% from May 2020 to an average of $688,000. CREA’s Home Price Index, which tracks the benchmark for home prices with the upper and lower extremes stripped out, rose by 1% month over month – reflecting prices are chilling in the short term – but was still up a gargantuan 24.4% year over year. However, CREA believes price growth has likely peaked for the year, and anticipates its pace to continue to moderate into the summer months.
Huge year-over-year price growth was recorded in Canada’s major markets, but some experienced small short term dips as demand has buyer demand shifted from higher-priced detached homes, says CREA.
- Greater Vancouver: $1,003,863 (+34.9% yoy, -2.7% mom)
- Greater Toronto: $1,106,462 (+28.4% yoy, +1.1% mom)
- Calgary: $516,196 (+18.6% yoy, -1.9% mom)
- Montreal: $569,313 (+28.5% yoy, -0.8% mom)
- Halifax-Dartmouth: $466,633 (+29% yoy, -0.5% mom)
Related Read: GTA Home Sales Continue to Drop in May
Why is the Housing Market Cooling?
May and June are typically the hottest months for real estate activity – so why are this years’ sales bucking the trend? Simply put, real estate is becoming less of a focus as society opens back up and consumers direct their spending power elsewhere. Buyers are also fatigued from months of “supercharged” conditions that have heavily favoured sellers, while others are hitting a price wall as affordability shoots out of reach in many markets.
Says CREA Chair Cliff Stevenson, “While housing markets across Canada remain very active, we now have two months of moderating activity in the books, and that goes for demand, supply and prices. More and more, there is anecdotal evidence of offer fatigue and frustration among buyers, and the urgency to lock down a place to ride out COVID would also be expected to fade at this point given where we are with the pandemic.”
However, sellers’ market conditions persist in markets small and large across the nation; the national sales-to-new-listings ratio (SNLR) was 75.4% in May – a slight decline from 76.2% in April and well below the 90.7% recorded in January, but still quite steep compared to the long-term average of 54.6%. This ratio is calculated by dividing the number of sales by the number of new listings in the market over the course of the month; a range between 40 – 60% indicates a balanced market, with above and below that threshold indicating sellers’ and buyers’ markets, respectively.
Related Read: 4 Ways Home Buyers Can Stand Out in a Sellers’ Market
The level of inventory – the amount of time it would take to fully sell off all available homes for sale – sits at 2.1 months. That’s an improvement from 1.7 months in March, but well below the long-term average of five months.
What’s Next for the Housing Market?
CREA also updated its forecast for the remainder of 2021 and 2022, saying that while sales will continue to slow, activity will still be very strong from a historical standpoint. It calls for a record 682,900 home sales in 2021 – an increase of 23.8% from 2020, before dipping -13% in 2022 (which would still be the second-best year ever). Home prices will continue to rise by 19.3% next year, reflecting a continued supply and demand imbalance, before levelling out by 0.6% in 2022 to an average of $681,000.
However, CREA points out that as the pandemic recovery period will be unprecedented, it’s hard to gauge with certainty just how things will shake out. The association expects immigration and migration to strongly pick back up once lockdowns end, which will also have an impact on the market.
To sum up: while conditions won’t be as crazy as they were during the pandemic’s peak, historically strong demand and too-little supply will continue to make it a challenging market for would-be buyers this year and next.