Current State of Canadian Housing Markets—September 2020

On Thursday, October 15, the Canadian Real Estate Association (CREA) released its national housing statistics for the month of September. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for members.

I know I’m starting to sound like a broken record—about broken records—but after adjusting for seasonality September 2020 was yet another all-time record for home sales across Canada.

Activity was only up about 1% from August so the bigger picture here is the historically strong sales numbers we saw in July and August are not fading yet as we move into the fall. Spoiler alert: October is looking strong as well!

In September we saw Toronto and Montreal sales edge back a bit (although they’re still historically very strong) while some other markets picked up further to take up the slack. But given some of the supply shortages out there this year, these monthly fluctuations in sales and jockeying between markets may simply reflect those places where the kinds of homes people are looking to buy are (or are not) becoming available for sale at any point in time.

You can tell by looking at prices, because demand for homes is not just reflected in the sales numbers we can count, but in the combination of the sales we can count along with the spillover of excess demand for those properties onto the price side by way of multiple offers, which we’re seeing all over the place. All those disappointed households that didn’t “win” that most recent listing, you can bet they’ll be showing up to compete for the next one down the road.

Like I’ve said many times before (but I’ll say it again) in terms of the overall numbers we’re seeing right now this is the very market we had been expecting to see back in April, May and June before COVID-19 was a thing. Sales were almost setting records and markets were almost this tight back in February. So, we were already close to where things are now, as far away from Goldilocks territory as we had ever been before! It was put on pause during the initial lockdown period, but we’re seeing it show up now. That’s at least part of it. That’s the timing element of the spring market having been pushed into …well … now.

But in talking to reporters and others, I’ve noticed the conversation has moved away from surprise at how strong the numbers are, and towards more of a surprise at “how it’s possible the numbers can be that strong?”

Traditional headwinds: recession, unemployment and uncertainty with respect to the future. Fair enough! Many have asked how can housing be this strong given where we are (re: the above factors) … when all you have is a hammer everything looks like a nail.

Traditional Tailwinds: ultra-low interest rates. OK.

Non-traditional tailwinds: Government support to date, the uneven composition of job losses, pent-up demand from the lockdowns. OK but this won’t last.

What else?

Well, there’s the combination of more people jumping into the market because of COVID-19, but that’s trading off against those staying out of the market because of COVID-19. You can imagine where that might be on both the demand and the supply side, and how that could go either way.

And further under the surface of that, I’m sure there are a lot of changes to property type, size, age and quality versus location considerations because of the situation we’re all in also on both the demand and the supply side of things, compared to a hypothetical non-COVID-19 world.

Maybe the most obvious example would be if you aren’t making a daily commute anymore and at the same time you’re realizing you could really use more space both inside and out, should you move out of the city and score a bigger home? Trade a $200,000 building on a $600,000 piece of ground for a $600,000 building on a $200,000 piece of dirt? We’ve all been hearing about that one. But you can think of others? To borrow from a 60-year old cop show, “There are eight million stories in the naked city. This is just one of them.”

As always, I may have the view of the numbers from orbit, but I’m not there for the conversation around the dining room table, so please do chime in in the Comments section about what clients are telling you.

Remember this is not the market for new homes, it’s the existing home market. There is a huge housing stock out there and most owners stay put for years or decades. They’re not typically engaged in moving at any point in time, but if a once-in-a-lifetime event comes along that causes some (even a small) percentage of people to pull up stakes and move all of a sudden, then maybe some of these higher numbers in the existing home sales market stats are not all that surprising after all!

It’s a wildcard factor with no historical precedent—the value of one’s home during this time. Home has become our workplace, our kids’ schools, the gym, the park and more. Personal space is more important than ever, and maybe the space we had last year is not the space we need now.

In line with the tightest market conditions on record, and in line with our daily tracking of sale-to-list price ratios (which are historically high), the MLS® Home Price Index climbed by another 1.3% from August to September. That’s now an increase of about 5% just since June, and the index is now up more than 10% on a year-over-year basis.

We at CREA are happy to announce another 18 markets joined the MLS® HPI this month. With 39 markets across Canada now covered, I’ll just leave a table of price growth below. Big picture: supply is limited and demand is strong in a lot of places, so prices are on the rise.

I’ll be back with an update in November.