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Shortage of new listings causes home sales to decline

July 14, 2021

Photo: James Bombales

Michelle McNally - Livabl.com

Since reaching their peak in March, Canadian home sales have been on a downward trend. Yet, with the number of new listings dropping simultaneously, market conditions will likely continue to be rooted in the favour of sellers and keep prices climbing, according to new market commentary.

A recent Canada Economics Weekly report published by Capital Economics’ Senior Canada Economist, Stephen Brown, suggests that home prices could continue to increase based on declining sales and new home listing levels recorded in June.

“The local real estate board data suggest that home sales fell further in June but, with new listings declining as well, house prices look set to keep rising,” said the report.

According to regional data, Toronto home sales dropped by nine percent month-to-month in June, equalling a 35 percent drop in sales since March. Similarly, home sales in Vancouver were down by 14 percent from May to June, now 33 percent lower than they were in March.

Of the three cities Capital Economics analyzed in its report, Montreal’s market patterns deviated from its sister cities, recording an 18 percent month-to-month rise in home sales in June.

Although surging prices, particularly for single-family homes, have placed many prospective buyers out of the market, Brown’s report pointed to the lack of available homes for sale as an important factor behind June’s sales drop. Sales in Montreal, Toronto and Vancouver declined monthly by a combined total of four percent in June. However, the number of new listings dropped by an even larger amount of six percent, the report said.

“All this implies the nationwide sales-to-new listing ratio increased last month and remains tilted sharply in favour of sellers,” wrote Brown.

With market conditions indicating that home prices will continue to rise, the report noted that the Bank of Canada (BoC) is concerned that a “self-fulfilling cycle of rising house price expectations and house prices” may emerge, resulting in a “destabilising slump” in prices in the future.

The BoC’s most recent Survey of Consumer Expectations showed that consumer expectations for house price inflation increased during June, even though improved affordability from lower mortgage interest rates have been factored into account.

Although the BoC has pushed housing price concerns to the side, Brown’s report explained that this approach may be “harder to defend” towards the end of summer — by the fall, employment is anticipated to have returned to its pre-pandemic levels.

The BoC is expected to introduce various indicators that would monitor slack in the labour market, which Brown says will help to determine when the BoC may raise interest rates.

This article was originally published on Livabl.com


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