March sales numbers might be the first in a longer series of market softening, BMO says
With existing home sales declining by 17.8% annually and 5.4% on a seasonally-adjusted basis in March, there are now clear signs that buyer demand is slowing down amid higher mortgage rates, according to BMO Economics,
Robert Kavcic, senior economist and director of economics at BMO, said that the March deceleration might be the first in a longer series of market softening.
March also saw new listings decline by 5.5%, leaving the national sales-to-new listings ratio at sellers’ territory of 75.3%.
However, Kavcic stressed that “it’s still too early to see the impact of rate hikes in the official data.”
“Considering that many buyers are somewhere within 90-day rate holds, and another 100 bps of tightening is likely by mid-July, we might not see the full impact until the second half of the year,” Kavcic said. “We suspect conditions will feature lower demand, more ample inventory, and price declines across a number of markets.”
Read more: Is a dip in housing market activity imminent?
Additionally, significant balance differences across markets are becoming apparent.
“The suburban Toronto market is arguably slowing fastest, and the overall GTA balance suddenly looks very neutral. Smaller markets further outside the core are cooling quickly as well,” Kavcic said. “Elsewhere, Alberta remains rock solid, and Atlantic Canada still looks to have very tight markets. Vancouver, Ottawa and Montreal are mixed in between the extremes.”
Another factor that might play into future sales dynamics is the residential construction segment, which is currently being pushed to its limit. Canadian housing starts stood at 246,200 annualized units in March.
“Contrary to the popular narrative, Canada is building pretty much all it can at this point, especially with the job market in construction running at full capacity,” Kavcic said. “Indeed, there are currently 330,000 units under construction – that’s the largest amount by a long shot going back to the 1950s, and just about matches the 1970s boom on a per-capita basis.”
