Bank economist says Canadian real estate market “still a long way back from the moon”

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      Last week, the B.C. Real Estate Association reported that the market is “calming” from the “frenzied activity of recent months”.

      The BCREA made the observation as it released April sales numbers showing a month-on-month decline from March 2021.

      For perspective, Marh 2021 sales set a new highest monthly tally in B.C., beating the previous record in May 2016.

      It’s the same situation across the country.

      On Monday (May 17), the Canadian Real Estate Association reported that national home sales were down from March to April 2021.

      Sales declined 12.5 percent on a month-over-month basis in April.

      The number of newly listed properties also fell back and at a rate of 5.4 percent from March to April.

      Meanwhile, the benchmark of a home rose 2.4 percent month-over-month, and was up 23.1 percent year-over-year from April 2020.

      Following the CREA’s May 17 release of its April 2021 numbers, economists with BMO, RBC, TD, and Scotiabank on the same day analyzed what’s going on.

      Robert Kavcic, a senior economist with BMO, wrote that “headlines will probably flag housing market declines in April”.

      “But don't them fool you,” Kavcic noted.

      The BMO economist noted that the “market is still extremely strong across geography and segment, even if we've likely seen peak momentum”.

      “It's still a long way back from the moon,” Kavcic stated.

      To explain, Kavcic pointed out that April 2021 sales were “still running 45% above the 10-year average”.

      This means that “demand is extremely strong even if down from record levels”.

      Although sales-to-new listings ratio fell for a third straight month, it stands at 75 percent nationally, showing that it “still remains a firm sellers' market”.

      In addition, there’s “wall-to-wall strength that we've probably ever seen in this country”.

      “Long-dormant markets like Calgary and Edmonton are awake again with prices up roughly 9% y/y [year-over-year]; Toronto, Montreal and Vancouver remain strong as usual; some smaller markets (think Halifax, Moncton, Southwestern Ontario) are even stronger than the big cities; and cottage country is to the moon (insert emoji),” Kavcic wrote.

      Meanwhile, Robert Hogue with RBC Economics noted that “prices continue to escalate”.

      Hogue noted the benchmark price rose 2.4 percent or by $17,000 between March and April, “pushing up the increase to $135,000 (23.1%) since April last year”.

      “There is plenty of room for activity to ease further in the months ahead—and yet remain historically vibrant,” the RBC economist stated.

      Hogue expects a “gradual rise in longer-term interest rates, deteriorating affordability, mortgage stress test tightening and the resumption of office work to cool demand down a few degrees”.

      In another analysis, Rishi Sondhi with TD Economics noted that whole existing home sales dropped 12.5 percent month-on-month in April 2021, the “level of activity remained historically elevated”.

      “Despite falling in April, it's important to note that both sales and price levels remained at near-record levels,” Sondhi wrote.

      “This means that markets stayed hot last month,” the TD economist added.

      Meanwhile, Scotiabank economist Farah Omran noted a “persistent tightness in the housing market”.

      As a result, the benchmark price rose 2.4 percent in April compared to March.

      “Despite the slowdown in sales relative to March, the housing market remains historically strong,” Omran wrote.

      Omran noted that unless the housing stock increases and the market achieves a “better supply-demand balance in the market, home prices are more likely to go up than down”.