Canadian Existing Home Sales (October 2017)

Michael Dolega, Director & Senior Economist | 416-982-6420

Date Published: November 15, 2017

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Existing home sales increase for the third consecutive month in October

  • Canadian existing home sales rose 0.9% m/m in October, marking the third consecutive increase. Still, existing home sales remain about 11% below their overheated pace reached in March 2017. 
  • The increase was largely related to a continuing rebound in Ontario (+2.5%) and the GTA (+2.5%) – which have both posted their third consecutive monthly increases. Several other Ontario markets have also experienced gains this month including Thunder Bay (+16.5%), Niagara (+8.8%), and Hamilton (+6.6%), while most other major Ontario markets saw a decline in activity. Saskatchewan (+2.2%), B.C. (+1.9%), New Brunswick (+1.9%) and Quebec (+0.8%) also saw a pick-up in activity while sales in Newfoundland & Labrador remained unchanged. The remainder of provinces saw declines in activity led by P.E.I. (-10%) and Nova Scotia (-9.7%). 
  • New listings fell 0.8% with six provinces seeing decreases. Declines were led by P.E.I.(-8.7%), while  B.C. (-1.6%) and Ontario (-1.2%) saw more moderate pull-backs. Despite the decline in Ontario, the GTA (+0.2%) saw a modest uptick in new listings.
  • Rising sales dwarfed new listings nationally, lifting the sales to new listings ratio by one point to 56.7% – still within the balanced territory but slightly favouring sellers. Conditions tightened in B.C. (+2.4pp to 71.2%) and Ontario (+2.0pp to 55.8%). Most other provinces saw little change in the sales to new listings ratio. Overall, most other markets remain in balanced territory that favours sellers including Manitoba (54.1%), Quebec (56.6%), New Brunswick (54.3%), and Nova Scotia (55.8%). On the other hand, the commodity-sensitive markets of Alberta (46.8%), Saskatchewan (37.5%) and Newfoundland & Labrador (37.8%) remain tilted towards buyers. 
  • The average home price rose for the third consecutive month, rising 1.7% in October. Despite the uptick, the average transaction price remains some 5% below its April 2017 peak. All provinces but Saskatchewan (-0.6%) and Newfoundland and Labrador (-0.7%) saw prices rise. Prices soared in P.E.I. (+14.8%) and gained 3.3% in Nova Scotia and Quebec, rising more modestly (1-2%) in remaining provinces. Ontario's prices were up 1.1%, marking a fourth consecutive monthly gain. The GTA market saw a more modest gain, averaging of 0.7% in October and marking the second monthly gain after five months of declines. Despite the uptick, average prices are still down 11% from their March 2017 peak.  
  • On a year-over-year basis, the quality adjusted MLS home price index decelerated from 10.5% to 9.7% as many Ontario markets continued to cool and commodity-dependent markets lagged. Prices decelerated from 12.2% to 9.7% in the GTA and from 17.3% to 13.2% in Guelph, holding largely steady in Oakville and Ottawa. Prices were flat in Calgary (+0.2%) and pulled back in both Regina (-1.7%) and Saskatoon (-4.1%). On the other hand, home values accelerated in the GVA (+12.3%) as well as in Montreal and Moncton, at 5.9% and 5.7%, respectively. 

Key Implications

  • This morning's report corroborates the notion that the Canadian housing market continues to maneuver a soft landing. After four months of significant declines, which saw activity plummet by 15%, October marked the third consecutive increase in activity nationally. The uptick in October was largely an Ontario story where sales rose, while listings remained largely unchanged – supporting the sales to new listings ratio. Markets in Ontario remain vulnerable given affordability issues and lingering uncertainty regarding policies, but it would appear that the worst is behind the province, with some stability likely in store in the near- to medium-term. 
  • While ex-Ontario sales were down a touch (-0.1%), five other provinces experienced a pick-up in activity apart for Ontario. This suggests that relatively healthy conditions are prevailing across these markets. This is particularly the case in Quebec, New Brunswick, and Nova Scotia. These three, which were stuck in the doldrums in previous years, have seen significant progress in recent quarters. A favorable macroeconomic backdrop has supported healthy housing activity, with a lack of excess supply enabling the firming of market conditions. Across all three, the ratio of sales to new listings has risen to the mid-50% level – the highest level in nearly a decade in these markets – pressuring prices and likely to support homebuilding going forward. 
  • B.C. too is seeing a strengthening of conditions. While activity remains some 16% below its April 2016 peak, the market has been making consistent progress, with strong activity driving the sales to ratio above 70% once again – heavily favouring sellers. We expect continued improvement going forward, but the pace should moderate given affordability issues that should begin to weigh more heavily on the richly-valued B.C. markets as mortgage rates rise.
  • The recovery in energy-rich provinces has been progressing, but has slowed in recent months despite some improvement in labour markets across these provinces. We expect the trend to continue alongside improving economic fundamentals, but the process is likely to be protracted given the rising rate environment.
  • All in all, we expect a continuation of the soft-landing narrative that's been playing out across most Canadian markets. After raising rates twice over the summer, the Bank of Canada is expected to hike in January, with rising interest rates likely to impinge on Canadian housing activity. Activity will be further impacted by the imposition of the updated B-20 rules from OSFI, effective in January 2018. As such, after some near-term weakness, likely to last into mid-2018, activity should begin to rebound thereafter on the back of fundamental demand related to a healthy labour market and strengthening wage dynamics.