Canada is still in a deep winter freeze, but the market is shaping up for an interesting Spring. National Bank of Canada (NBF) found that real estate inventory proved more resilient than sales in December. That inventory might be even higher this Spring, as frustrated sellers cancel 1 in 5 listings without a sale. Many waiting for cheaper mortgages and improved demand in the Spring may be in for a surprise. Not only will this group-think result in them re-listing at the same time, but bond markets have been pushing yields higher, undermining the impact of mortgage stimulus.
Canadian Real Estate Demand Was Weaker, But Generally Improved
Canadian housing demand is slipping, but the worst appears to be in the market’s rearview. Seasonally adjusted home sales showed a monthly drop of 5.8% in December, the first contraction following four months of gains. Easing has helped improve demand, but it remains historically weak—especially with the surging population growth.
“…sales were still 12.9% higher than May, before the Bank of Canada began cutting interest rates,” explains Daren King, an economist at NBF.
Canadian Real Estate Inventory Is Proving More Resilient Than Sales
Canadian housing supply remains robust and more resilient than demand. Seasonally adjusted new listings made a monthly drop of 1.7% in December, falling less than a third of the rate of sales. This helped active listings add another 2.0% over the same period. Those with exceptional math skills may have noticed those numbers don’t quite balance. Where did the others go? Those listings were canceled.
Canadian Real Estate Sellers Canceled 1 In 5 Listings Last Month
A canceled listing is one where the seller terminates the agreement. Demand is often thought of as speed of sales, and a straight comparison of sales to inventory. However, if the inventory is being re-listed repeatedly or delisted until the market improves, demand at the price point is overstated.
The number of canceled listings is improving but remains much higher than usual. The share of total listings canceled peaked at 26% back in 2022, when rates were hiked and sales suddenly plunged. It was down to 20% last month, which is better—but before 2020, this level of churn was scarce. Sellers are canceling 1 in 5 listings, a surprisingly high volume that implies the market is far from normal. It may also indicate that a significant backlog of inventory is on pause until the Spring, and sellers hope rate cuts improve their selling prospects.
NBF sees policy measures last month helping to improve sales to some degree. They cite the 50 basis point rate cut and the Federal government rolling out 30-year mortgages as positive market activities. However, the global markets might be working against those factors.
“Despite those positive factors, it will be important to look at the impact of the recent rise in long-term bond yields, which is likely to be passed on to fixed mortgage rates,” warns King.
Rate cuts improved sentiment but didn’t provide much in the way of increased credit capacity. Fixed-rate mortgages, influenced by the bond market’s yields, are significantly cheaper than variable-rate mortgages impacted by rate cuts. With global bond markets sending yields in the wrong direction, the gamble of pausing to re-list when mortgages are cheaper may not materialize into reality.