Canadian Real Estate Markets Overheat (Again), Government Cities Tighten Most

Back in October, government workers were ordered back into the office to bolster real estate demand. A month after most workers were ordered back, real estate markets have re-entered overheated territory. Canadian Real Estate Association (CREA) data shows the sales to new listings ratio (SNLR) increased in November. This time the rally is driven by “government towns,” the exact markets where policymakers sought to preserve values. On the other hand, cities like Toronto and Vancouver have seen a much smaller improvement in demand—notably lagging the general market. 

SNLR 

The sales to new listings ratio (SNLR) is the preferred demand indicator for CREA. It’s exactly what it sounds like—the number of sales compared to the number of new listings for sale. This helps give a read on inventory replenishment and gives perspective on how fast the market can keep up with demand.  

Reading the ratio is also straightforward, with three ranges used as guidelines. If the SNLR falls between 40 and 60 percent, the market is said to be “balanced” and priced right for the demand. Above 60 percent is a seller’s market where inventory is tight and prices are expected to rise. Below 40 percent is a buyer’s market, where supply is considered excessive for demand and prices are expected to fall.  

There are a few caveats to remember, such as the rate of change and seasonality. The speed at which the SNLR changes can mean the market is only making a quick stop in a range. Balanced territory might just be a stop to a buyer or seller’s market. The season can also have a big impact since buyers are more likely to be motivated by a short-term factor than sellers. A new credit measure may motivate buyers, but has little effect on sellers that aren’t prepared to move until the Spring. As such, winter markets tend to look very tight but don’t necessarily carry into the Spring.

Canadian Real Estate Markets Re-Enter Frothy Territory

The sales to new listings ratio (SNLR) for major Canadian real estate markets and the national indicator.

Source: CREA; Better Dwelling.

The national SNLR has launched much higher in recent months. The ratio added 12.6 points from last year and hit 67.3% in November, firmly in a seller’s market. The ratio is also higher than the same month in 2022 (+6.7 points), but still behind 2021 (-7.3 points). Just 3 out of the 26 major boards tracked by CREA showed a lower SNLR than last year. 

The sudden change is primarily attributed to credit stimulus and pent-up demand. Aggressive rate cuts haven’t been enough to make mortgages cheaper, but it’s enough to drive FOMO over the fact lower rates may be around the corner. Combined with buyer stimulus from the Federal government, and many buyers are likely trying to get ahead of the market. Especially those that have delayed their purchase to see if prices would fall further. 

Markets Impacted By Public Sector, Back-To-Office Orders Saw The Sharpest Tightening

Despite the SNLR rising in almost all markets, a few markets saw massive jumps from last year. Victoria’s ratio (SNLR: 77.8%; +31.3 points y/y) saw the highest growth in the past year. It was followed by Quebec City (SNLR: 92.2%; +25.9 points y/y), and Ottawa (SNLR: 76.6%; +25.6 points). All three markets are now extremely tight seller’s markets, and have one thing in common—they’re government towns where employment is heavily skewed to public administration. 

A month prior, governments and Crown agencies across Canada implemented “prescribed presence” programs. The programs require public sector employees to work out of the office a minimum number of days per week. The goal is to reverse the flight from major cities by anchoring workers to pricey downtown cores. Policymakers are hoping this doesn’t just prevent flight, but also bolsters the value of these regions that have suddenly been hollowed out post-2020.

Only 3 Markets Saw Demand Weaken… It Wasn’t Much Either

Only 3 markets saw a contraction, making them the biggest declines—though they weren’t very big. The SNLR in Saint John (SNLR: 89.6%; -3.2 points y/y) saw the sharpest drop. It was followed by Saguenay (SNLR: 66%; -1.6 points y/y), and Calgary (SNLR: 78.5%; -0.1 points y/y). All 3 markets remain seller’s markets, with Saint John and Calgary deep in that territory.  

Toronto and Vancouver Real Estate Markets Are Underperforming

Canada’s two largest real estate markets were amongst the least tight markets in the country. The SNLR across Greater Toronto dropped 10.4 points from last year and fell to 50.7% in November, smack dab in the middle of a balanced market. Greater Vancouver’s SNLR climbed 9.2 points to 60.3% over the same period, a rounding error away from the high end of balance. Both cities have significant government employment, but similar to regions like Calgary—employment is more diversified. 

Canadian real estate markets have suddenly tightened conditions, but it’s unclear if it will last. Sentiment or event-driven rallies can fade as quickly as they arrive, it just takes some bad news to change how the market feels. There’s no shortage of fundamental headwinds that could deliver that dose of reality, such as population growth and employment. The former is set to shrink by next year and the latter has already seen a recession-like erosion, especially in Toronto. 

You Might Also Like