BETTER DWELLING - Canadian real estate prices have been spiraling lower, but is a change in trend around the corner? Data from the Canadian Real Estate Association(CREA) shows that the price of a typical home increased in February. The national composite’s benchmark price had not moved higher since rate hikes began nearly a year ago. One increase is not a trend, but it can be a sign that buyers see the end of monetary policy’s influence on prices.
Canadian Real Estate Prices Climbed $7,000 In February
Canadian real estate prices changed course last month, recording the first increase in nearly a year. The composite benchmark rose 1.0% (+$7,100) to $715,400 in February. Despite the gain, prices remain 15.8% (-$133,900) lower than the same month last year. Home prices haven’t seen an increase in 11 months, which is sure to catch anyone’s eye that notices the shift.
Annual Growth Shows The Largest 12-Month Contraction On RecordWatchers of the annual growth rate likely missed the move due to a base-effect skew. February’s 12-month change for the benchmark was 3 points lower than the month before. Despite prices rising in the month, it failed to keep up with the monster move from the previous year. This produced the largest drop for the annual growth rate ever recorded, even with rising prices.
Shifting Buyer Mentality, Not Inventory Is Driving This TrendThere must be a shortage of inventory? Not exactly, conditions were loosened last month. The Sales to New Listings Ratio (SNLR), which is the industry’s preferred measure of inventory absorption, fell to 56.7% in February, one point lower than January and 20 points lower than last year. This ratio is firmly within a “balanced” market range, meaning it is priced correctly for the level of demand. Essentially, sales fell a lot faster than inventory, helping to relieve pressure.
If it’s not tighter inventory, what’s pushing prices higher? As mentioned with Toronto’s recent numbers, a change in sentiment is the driver. The Bank of Canada (BoC) rate “pause” in January was read as the peak for interest rates. It was reinforced by the Governor partially attributing the pause to high household debt, which doesn’t just disappear immediately. By revealing they’re in a pinch, the market read that as the inability to keep up.
The current bank run crisis in the US is likely to only reinforce this sentiment. Though the risk of low rates sparking demand and thus inflation, also remains a risk in the other direction. No one planned on double digit inflation during the early 80s, it was sparked in part by the premature easing of policy.
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