22 Jan

WEAK NEW LISTINGS SLOW CANADIAN HOME SALES AS PRICES CONTINUE TO RISE

General

Posted by: Jennifer Koop

WEAK NEW LISTINGS SLOW CANADIAN HOME SALES AS PRICES CONTINUE TO RISE.

Sellers Housing Market  Now in the Greater Toronto Area (GTA)

Statistics released today by the Canadian Real Estate Association (CREA) show that national existing-home sales dipped between November and December owing to a dearth of new listings, especially in the GTA.

National home sales edged down 0.9% in the final month of 2019, ending a streak of monthly gains that began last March. Activity is now about 18% above the six-year low reached in February 2019 but ends the year about 7% below the peak recorded in 2016 and 2017 (see chart below).

There was an almost even split between the number of local markets where activity rose and those where it declined, with higher sales in the Lower Mainland of British Columbia, Calgary and Montreal offsetting declines in the Greater Toronto Area (GTA) and Ottawa.

Actual (not seasonally adjusted) activity was up 22.7% compared to the quiet month of December in 2018. Transactions surpassed year-ago levels across most of Canada, including all of the largest urban markets.

The December decline in home sales is not a sign of weakness but is instead the result of diminishing supply. Excess demand continues to push up prices in most regions of Canada. Demand has been boosted by low interest rates, strong population growth and strong labour markets that have triggered significant gains in household incomes. Mitigating this, in part, is the mortgage stress-test, which continues to sideline some potential buyers.

According to Gregory Klump, CREA’s Chief Economist, “The momentum for home price gains picked up as last year came to a close. If the recent past is prelude, then price trends in British Columbia, the GTA, Ottawa and Montreal look set to lift the national result this year, despite the continuation of a weak pricing environment among housing markets across the Prairie region.”

New Listings

The number of newly listed homes slid a further 1.8% in December following a 2.7% decline the month before, leaving supply close to its lowest level in a decade.

Slightly higher sales and a drop in new listings further tightened the national sales-to-new listings ratio to 66.3%, which is well above the long-term average of 53.7%. If current trends continue, the balance between supply and demand makes further home price gains likely.

 

December’s drop was driven mainly by fewer new listings in the GTA and Ottawa–the same markets most responsible for the decline in sales. Listings available for purchase are now running at a 12-year low. The number of housing markets with a shortage of listings is on the rise; should current trends persist, fewer available listings will likely increasingly weigh on sales activity.

With new listings having declined by more than sales, the national sales-to-new listings ratio further tightened to 66.9% in December 2019 – the highest reading since the spring of 2004. The long-term average for this measure of housing market balance is 53.7%. Price gains appear poised to accelerate in 2020.

Considering the degree and duration to which market balance readings are above or below their long-term averages is the best way of gauging whether local housing market conditions favour buyers or sellers. Market balance measures that are within one standard deviation of their long-term average are generally consistent with balanced market conditions.

Based on a comparison of the sales-to-new listings ratio with the long-term average, just over half of all local markets were in balanced market territory in December 2019. That list still includes Greater Vancouver (GVA) but no longer consists of the GTA, where market balance favours sellers in purchase negotiations (see chart below). By contrast, an oversupply of homes relative to demand across much of Alberta and Saskatchewan means sales negotiations remain tilted in favour of buyers. Meanwhile, an ongoing shortage of homes available for purchase across most of Ontario, Quebec and the Maritime provinces means sellers there hold the upper hand in sales negotiations.

The number of months of inventory is another important measure of the balance between sales and the supply of listings. It represents how long it would take to liquidate current inventories at the current rate of sales activity. There were 4.2 months of inventory on a national basis at the end of December 2019 – the lowest level recorded since the summer of 2007. This measure of market balance has been falling further below its long-term average of 5.3 months. While still within balanced market territory, its current reading suggests that sales negotiations are becoming increasingly tilted in favour of sellers.

There remain significant and increasing disparities in housing market activity across regions of Canada. The number of months of inventory has swollen far beyond long-term averages in Prairie provinces and Newfoundland & Labrador, giving homebuyers ample choice in these regions. By contrast, the measure is running well below long-term averages in Ontario, Quebec and Maritime provinces, resulting in increased competition among buyers for listings and providing fertile ground for price gains. The measure is still within balanced market territory in British Columbia but is becoming increasingly tilted in favour of sellers.

Home Prices

The Aggregate Composite MLS® Home Price Index (MLS® HPI) rose 0.8%, marking its seventh consecutive monthly gain. It is now up nationally 4.7% from last year’s lowest point posted in May. The MLS® HPI in December was up from the previous month in 14 of the 18 markets tracked by the index. ( see table below).

Home price trends have generally been stabilizing in the Prairies in recent months following lengthy declines but are clearly on the rise again in British Columbia and Ontario’s Greater Golden Horseshoe (GGH). Further east, price growth in Ottawa and Montreal has been ongoing for some time and strengthened toward the end of 2019.

Comparing home prices to year-ago levels yields considerable variations across the country, although for the most part has been regionally split along east/west lines, with declines in the Lower Mainland and major Prairie markets and gains in central and eastern Canada.

The actual (not seasonally adjusted) Aggregate Composite MLS® (HPI) rose 3.4% y-o-y in December 2019, the biggest year-over-year gain since March 2018.

Home prices in Greater Vancouver (-3.1%) and the Fraser Valley (-2%) remain below year-ago levels, but declines are shrinking. Elsewhere in British Columbia, home prices logged y-o-y increases in the Okanagan Valley (+4.2%), Victoria (+2.3%) and elsewhere on Vancouver Island (+4.2%).

Calgary, Edmonton and Saskatoon posted y-o-y price declines of around -1% to -2%, while the gap has widened to -4.6% in Regina.

In Ontario, home price growth has re-accelerated well above consumer price inflation across most of the GGH. Meanwhile, price gains in recent years have continued uninterrupted in Ottawa, Montreal and Moncton.

All benchmark home categories tracked by the index accelerated further into positive territory on a y-o-y basis. One-storey single-family home prices posted the most significant increase (3.6%) followed closely by apartment units (3.4%) and two-storey single-family homes (3.3%). Townhouse/row unit prices climbed a slightly more modest 2.7% compared to December 2018.

The actual (not seasonally adjusted) national average price for homes sold in December 2019 was around $517,000, up 9.6% from the same month the previous year.

The national average price is heavily skewed by sales in the GVA and GTA, two of Canada’s most active and expensive housing markets. Excluding these two markets from calculations cuts more than $117,000 from the national average price, trimming it to around $400,000 and reducing the y-o-y gain to 6.7%.

Article courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres.

13 Jan

SIGH OF RELIEF AS DECEMBER JOBS REPORT REBOUNDS

General

Posted by: Jennifer Koop

SIGH OF RELIEF AS DECEMBER JOBS REPORT REBOUNDS

Welcome Rebound in Labour Markets in December

For this notoriously volatile data series, it is particularly true that ‘one month does not a trend make.’ Following last month’s dismal employment report, job growth rebounded in December, erasing almost half of the earlier decline (even more if you exclude transitory factors in November). As well, the unemployment rate reversed much of its November spike, capping the second-best year of job growth since the recession and supporting the Bank of Canada’s view that the Canadian economy is resilient.

Canada’s economy created 35,200 net new jobs in December, bringing the total number of jobs added to 320,300 in 2019, the second-most since 2007. The jobless rate ticked down three basis points to 5.6% and wage gains decelerated to a still-healthy 3.8% from a year earlier.

All of the job creation was in full-time employment in the private sector. Provincially, employment gains in December were led by Ontario and Quebec; British Columbia led declines. Construction jobs increased markedly, with BC and Ontario contributing the most to the rise. Following two months of decline, employment in manufacturing was little changed in December. The trade war has hit manufacturing hard, and even though a trade deal will be signed by China and the US next week, it does not eliminate the bulk of the tariffs imposed in the past year.

In December, BC continued to have the lowest jobless rate in the country at 4.8% (see Table below). Ontario and Quebec are now running neck-in-neck following a period of stronger job growth in Quebec. Atlantic Canada remains in the last place with secularly high unemployment rates–a long-standing situation.

 

Bottom Line: the December employment report confirms the Bank of Canada’s current policy stance that despite headwinds, the Canadian economy remains relatively resilient and that further interest rate cuts are unnecessary. This assessment can change on a dime in today’s uncertain world, but for now, the central bank is likely to remain on hold. Interest rates have risen in the past six-to-eight weeks owing to market forces. The fourth-quarter GDP growth in Canada has slowed markedly on weakness in consumer and business spending; hence the Bank will be monitoring closely upcoming data. We are forecasting roughly 1.8% growth in the economy in 2020, about in line with the 2019 pace. With very tight labour markets, the output gap has closed, and the economy will run at the longer-run potential growth pace consistent with our forecast.

Consumer Confidence Down

Canadian consumers appear to be less sanguine about the outlook than economists. In an end-of-year survey for Bloomberg News by Nanos Research Group, 55% of Canadians said there’s at least a “somewhat likely” chance of a recession this year. Only 33% reported a recession is unlikely, with 12% unsure. According to Bloomberg News, ” the downbeat perceptions reflect a pervasive sense of caution that has dogged the country’s households for more than a year and impacted their behaviour.”

Excluding housing, annual growth in total household consumption has averaged 1.1% in real terms over the past four quarters, the slowest pace outside recession since at least 1962. Another sign of cautiousness: savings rates are inching higher and are now at their highest level since 2015.

Bloomberg reports that “there are also indications that consumer worries have levelled off. The results are little changed from a similar poll taken at the end of November. A separate gauge of consumer confidence — the Bloomberg Nanos Canadian Confidence Index — saw a rebound in December from a two-month slide, as stock markets surged at the end of last year and sentiment around real estate recovered.”

Not surprisingly, recession concerns are most pronounced in prairie provinces like Alberta, where almost three-quarters of households see a chance of a 2020 contraction. Alberta has been hard hit by the plunge in oil prices since mid-2014 and is only slowly recovering. A majority of respondents in British Columbia and Ontario are also concerned a downturn is imminent. Quebec was the only province where optimists outnumbered pessimists.

Consumer confidence in the US has also declined, yet the stock markets in both countries continue to post record highs. We are in the eleventh year of economic expansion, the longest expansion on record, although it is not the strongest. Unlike the US, Canada has benefitted from a surge in immigration in the past three years, boosting growth.

Canadian housing markets have rebounded considerably from the Jan 1, 2018 imposition of the B-20 mortgage stress tests and fiscal stimulus is likely in the next budget, cutting taxes for the middle class and boosting government spending. Such stimulus will likely forestall further weakening in the economy.

 

Article courtesy of Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres.