Canadian real estate prices have been resilient in recent years, but a fundamental indicator is flashing warning signs. Canadian Real Estate Association (CREA) data shows the sales-to-new listings ratio (SNLR) fell in June, indicating the weakest demand balance for the month since 1995. The indicator hasn’t eroded from peak to trough this quickly since the late 80s, during the years directly preceding the 1990s real estate price crash, the largest in Canada’s history.
Sales-To-New Listings Ratio
The sales-to-new listings ratio (SNLR) is a simple but powerful metric the industry uses to gauge demand balance. It’s a leading indicator of market conditions and price pressure.
The SNLR is fairly straightforward to read, with a few helpful guidelines to interpret the ratio:
- > 60%: Excess demand creating pressure for prices to rise. This is also known as a seller’s market.
- 40-60%: A balanced market where the volume of buyers and sellers are in harmony, and prices are just right. We like to call this a Goldilocks’ market.
- < 40% : Excess supply creating pressure on prices to drop. This is known as a buyer’s market.
Remember, these are only guidelines and there are some important caveats to keep in mind— the most important being the velocity of change. As with most finance indicators, where a market is matters less than where it’s heading. A balanced market may still see aggressive price increases if demand suddenly rises faster than supply, and vice versa.
Canadian Real Estate June Demand Balance Was The Weakest Since 1995
The CREA sales-to-new-listings ratio (SNLR) for properties on the MLS in June.
Source: CREA; Better Dwelling.
Canadian real estate’s demand balance just saw the weakest June in well over a generation. The national SNLR fell to 49.3% in June, down 2.2 points from last year. The erosion was driven by new listings (+8%) advancing at more than double the rate of sales (+3.5%). Last month was the weakest SNLR for June since 1995, which was during the country’s largest real estate downturn ever.
Despite a relatively small correction following 26 years of generally rising prices, market conditions now resemble historical warnings. It was the fourth consecutive June to see the SNLR drop, marking an unprecedented 23.8 point drop from peak to trough. The drop reflects supply advancing 32% faster than demanded, a move that hasn’t been exceeded since the 41% drop between 1988 and 1990, which led to the largest real estate price correction in history. That period marked the last significant national housing downturn and bubble correction in Canada.
Does this indicate Canada’s real estate bubble is about to crash or the correction is over? Drop your thoughts in the comments below.
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