Canadian Home Sales Fall 7.4% in May, Average Selling Price Also Inches Down From Month Before
Canadian home sales and the average price fell in May compared with April, as frustrated would-be buyers took a break and some of the pandemic urgency to secure a home began to fade, the Canadian Real Estate Association (CREA) said on June 15. Canadian home sales fell 7.4% in May from April, while the average selling price was down 1.1% from the previous month, according to CREA data. It was the second consecutive month of declines after a blazing start to the year.
The national average selling price was $696,000 in May, down 1.1% per cent from April but up 38.4% from a year earlier, the industry group said. Home prices fell in April and May of last year amid first-wave COVID-19 shutdowns.
Actual sales, not seasonally adjusted, rose 103.6% from a year earlier, while CREA’s Home Price Index was up 24.4% on the year and up 1% from April.
There were 2 months of inventory on a national basis at the end of April 2021, up from a record-low 1.7 months in March but still well below the long-term average for this measure of a little more than 5 months.
“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,” Cliff Stevenson, chair of CREA, said in a statement. “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,” he added.
The number of transactions in May was a significant drop compared with a year ago, when the COVID-19 pandemic was spreading rapidly through the country, but the association expects sales to edge toward more typical levels through the latter half of 2021 and into 2022. The association is predicting 2021 will see transactions rise 23.8% from last year to reach a record-setting 682,900, then fall by 13% to around 594,000 units in 2022.
Stevenson attributed the slowing sales numbers to higher prices, a lack of supply and a general malaise spreading in many markets. CREA believes the declines in sales will be largest in B.C. and Ontario, where pre-pandemic bidding wars and soaring prices became even more intense during the health crisis.
It said these declines will create a “Simpson’s Paradox,” where the average price in every province will experience a larger year-over-year increase than the national average because sales will shift away from the most expensive provincial markets. The association expects the average home price will rise by 19.3% on an annual basis to hit $677,775 this year and then edge up by less than one per cent to reach $681,500 in 2022.
The highest average home prices are expected in B.C., where CREA forecasts they will reach $883,781 in 2021 and 896,304 in 2022. Ontario will trail close behind with an average price of $859,533 this year and $887,031 next. The most affordable housing will be found in Newfoundland and Labrador, where homes will sell for an average $272,964 in 2021 and $279,937 in 2022.
CMHC Says Annual Pace of Housing Starts Rose 3.2% in May Compared With April
Canada Mortgage and Housing Corp. says the annual pace of housing starts in May rose 3.2% compared with April, as starts of apartments, condos and other types of multiple-unit housing projects rose higher. The housing agency says the seasonally adjusted annual rate of housing starts climbed to 275,916 units in May, up from 267,449 units in April,
The annual pace of urban starts rose 1.8% in May to 254,647 as a rise in multiple-unit starts offset a drop in starts of single-detached homes. The rate of multiple-unit starts climbed 10.9% to 190,530 in May, while the annual rate of single-detached urban starts fell 18% to 64,117 units. Rural starts were estimated at a seasonally adjusted annual rate of 21,269.
The six-month moving average of the monthly seasonally adjusted annual rate of housing starts was 280,779 in May, up from 278,462 in April.
Canada is Buying Too Much House
Fiscal dominance is what happens when the public debt and deficit get so big that the central bank feels compelled to keep borrowing costs low to help the government avoid bankruptcy, rather than let itself be guided by economic conditions. Some think Bank of Canada Tiff Macklem is already being bullied by Prime Minister Justin Trudeau’s deficits. Macklem dismisses those charges, saying policy-makers have learned real-world concerns such as long-term unemployment deserve more attention than theoretical threats that are scarier in textbooks than in real life.
A bigger concern for Canada might be real-estate dominance. Statistics Canada’s latest tally of gross domestic product on June 1 shows that residential investment has rarely been a bigger part of the overall economy. That’s great for real-estate brokers, but bad for competitiveness, because it suggests that houses are becoming a magnet for precious investment dollars that could be put to more productive uses. As Evan Siddall, the former head of Canada Mortgage and Housing Corp., tweeted in April, “Housing is mining our economic future.”
An international comparison might be helpful. Australia, another small and open economy that relies heavily on commodity exports, often makes a good foil for Canada. The Aussies have also shown a love of housing over the past decade, as Australian cities often show up alongside Canada’s bigger urban centres atop lists of the most expensive real estate on the planet. Australia also published first-quarter GDP figures last week. The chart below shows what investment looks like Down Under compared with what’s happening up here in the North. Australian policy-makers might want to nudge their entrepreneurs and executives to get more excited about intellectual property, a proxy for innovation in the digital economy. But it’s hard to look at those bars and avoid the conclusion that Canada is buying way too much house.
Source: Financial Post