Indicators continue to show low likely hood of a wide spread steep down turn in Canada’s housing market in next 12 months.
- The sales-to-new listings ratio is a reliable gauge of the degree of slack or tightness in the resale market. When the ratio approaches, or is above 0.60, the market favours sellers and prices typically rise rapidly. When the ratio approaches, or is below 0.40, the market favours buyers and prices come under intense downward pressure. Anything in between is considered a balanced market and prices tend to rise modestly.
- Canada-wide, the sales-to-new listings ratio climbed into seller’s market territory this year and was 0.62 in July 2016, just slightly below the sixyear high of 0.65 reached in April and May. In recent months, home resales in Canada have come off this spring’s all-time highs, while new listings have partially rebounded following steady declines during the first half of 2016. The majority of markets are considered balanced with Toronto and Vancouver (both sellers’ market) bucking the trend.
- Historically, the largest price declines occurred when the ratio fell below 0.35.
- The total number of homes for sale expressed as the number of months it would take to sell them at the current pace of sales is another resale market balance indicator. Historical correlation with prices is difficult to establish with precision, however, because the Canadian Real Estate Association has been publishing this indicator only since 2004.
- Nonetheless, based on what track record is available, we estimate that downward pressure on prices start to build at levels between 7.0 and 8.5 months, and that severe pressure emerges at levels exceeding 8.5.
- The slowdown in listings during the first half of 2016 amid strong resales reduced the number of months’ inventory in Canada to the lowest level (4.6) in more than six years. This level is consistent with continued price increases.
- Demand-supply balance indicators for the existing home market, therefore, continue to suggest little in the way of any imminent threat to the stability of the national market.