You Weren’t Expecting Canada’s Home Prices to Cool, Were You?

The national picture

To be fair to CREA, total home sales across Canada did slide 7.4% from April to May, so the pace of selling has fallen steadily since March, when a record 76,259 homes changed hands.

But a drop in sales doesn’t necessarily signal a drop in demand. In a scalding market, fewer sales often means buyers simply can't afford the homes on offer, or that the number of homes on the market is rapidly decreasing and making sales growth impossible. CREA says new listings in Canada fell by 6.4% last month.

One of the most important metrics for taking a market's temperature is its sales-to-new listings ratio. The higher that is, the faster homes are being snatched up by buyers.

In May, the ratio was 75.4%, down ever so slightly from April, but a massive improvement over the 90.7% seen in January. For Canada to shift into buyer's-market territory, the sales-to-new listings ratio would need to be closer to 40%.

Don’t count on that happening anytime soon. CREA said in its news release on Tuesday that three-quarters of local markets had sales-to-new listings ratios that were "above long-term norms, in many cases well above."

The national average selling price in May was just over $688,000. While that was almost $30,000 lower than the record established in March, it was up about 40% from May 2020.

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Home sales in Ontario

How much "cooler" did things get last month in Canada's craziest housing market? Let's put it this way: Ontario smashed its previous sales record for May.

Home sales in the province more than doubled compared to May 2020, and were 24% higher than the five-year average. Year to date, Ontario's home sales are up 91.9% versus the first five months of 2020.

The average sale price, now $866,307, is 37.6% higher than a year ago.

While new listings in Ontario saw a healthy year-over-year rise of 77% in May, active listings were down almost 21% by the end of the month. CREA says active listings "haven’t been this low in the month of May in more than three decades."

If inventory keeps falling, you can bet that home values will continue heading in the opposite direction.

Home sales in British Columbia

Sales in B.C. rose by an incredible 178.2% year-over-year, according to the British Columbia Real Estate Association, which doesn’t share its monthly data roundup with CREA. The surging demand led to a 26.2% leap in the average home price, from $726,335 in May 2020 to $916,340 last month.

Supply in B.C. is rising, but primarily in the Lower Mainland. New listings outside of Metro Vancouver "have started to flatten out," says BCREA chief economist Brendon Ogmundson.

The new listings in Vancouver may have helped limit price growth in the city last month. The average price in Vancouver rose "only" 13.3% year-over-year — hitting just under an eye-popping $1.2 million.

Eight other local real estate boards in B.C. reported average price growth of more than 24%.

More: Avoid the stress of buying and selling a home at the same time

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Where home prices are growing the slowest

You can’t let national housing figures skew your view of the market too much, because they’ll inevitably be boosted by the high prices and more frequent sales in Ontario and British Columbia. But not every market in Canada is appreciating at an annual rate of 38.4%.

While there aren't many of these, some solid markets did see prices grow by far less than the national average in May:

• St. John's, Newfoundland and Labrador: 5.6%
• Regina, Saskatchewan: 8.1%
• Calgary: 11%
• Saskatoon, Saskatchewan: 13.1%
• Edmonton: 13.4%
• Vancouver Island, B.C. - 18.7%
• Kamloops, B.C.: 24%
• Saint John, New Brunswick: 26.3%
• Fredericton, New Brunswick: 26.5%
• Chilliwack, B.C.: 26.9%

The lesson, homebuyers, is to keep looking. Not every community's home prices are under the same pressure as Toronto's.

Talk to a mortgage broker and find out what you can afford. With mortgage rates as low as they are, you may be surprised how much house you can buy.

Once you have a maximum price to work with, start investigating communities where you'd be comfortable owning a home. Don't get the two steps reversed, either. Looking at markets before you've figured out your budget is a great way to disappoint yourself.

And even if you’re not gearing up for an imminent bidding war, think about how much of an impact commonsense financial decisions can have on your ability to qualify for a mortgage.

Keep your credit healthy, maximize your savings and drive as much income as you can. Even Canada's supposedly "cooling" market will incinerate your dreams. With no solution to the nation's housing supply crisis on the horizon, the only way to realize your homeownership dreams is with more money.