After being derailed by higher rates, the record run of the Canadian real estate market is quickly coming to an end. According to a recent research note published by BMO, the national sales to new listings ratio (SNLR) decreased in the month of April. This indicator acts as a leading price indicator by measuring supply in relation to demand. According to BMO, the real estate market in Canada can anticipate prices to compete with those in the country's largest market, which may see price growth disappear within the next three months.
Inventory Levels in Canadian Real Estate Markets Are Almost at a Balanced Level
The sale to new listings ratio, also known as the SNLR, is a method for evaluating the relative levels of inventory. It is the proportion of homes that have been sold relative to the total number of homes that have been recently listed for sale. When the SNLR is higher, it indicates that there is less space for inventory in comparison to the amount of buying activity.
The Canadian Real Estate Association (CREA) has collected data that demonstrates an abrupt decline in the ratio. In April, the SNLR came in at 66 percent, which is significantly lower than the average of 76 percent seen over the course of the previous year. According to BMO, the market is on the verge of becoming balanced as a result of this healthy decline.
At the national level, there has been a sudden transition from a hot market to a balanced market. However, the Greater Toronto Area market has the lowest ratio of any market in the country. Surprisingly, Canada has the weakest relative demand for real estate despite having one of the largest real estate bubbles in the world.
The Real Estate Market in Toronto Is the Biggest in Canada, but It's Beginning to Level Off
According to BMO, one of the most important real estate markets to keep an eye on is Greater Toronto. The seasonally adjusted national listing ratio (SNLR) for Canada's largest real estate market dropped to just 45 percent in April, putting it dangerously close to the bottom of a balanced market and inching closer to a seller's market. According to the findings of the bank's study, the regional SNLR has been on average 70 percent over the course of the past year.
The disappearance of the Home price growth in 3 months
The industry utilizes SNLR to measure the price growth in homes and this measure is mainly confirmed by the BMO. “Decades of history show that this ratio is an excellent leading indicator for average transaction prices, leading prices by about three months,” said BMO chief economist Douglas Porter. “…what the ratio is now telling us is that prices are about to go from 20%+ gains to a sudden stall. And that’s assuming the sales/listings ratio doesn’t fall further in coming months.”
As interest rate hikes have only gotten us halfway to neutral, it is likely that the SNLR will fall even further. At the beginning of this week, economists from a number of different financial institutions issued a warning to investors that the slowdown in the market is just getting started.
