Canada’s residential housing market registered a large uptick in October, as sales and property values continued to rise amid a dearth of available supply. Although the number of newly listed properties increased from September, the supply of homes for sale remains at a historic low.
Home Sales Rise in October: CREA
National home sales increased by 8.6% in October, marking the largest monthly increase since July 2020, according to the Canadian Real Estate Association (CREA). Sales were up in roughly three-quarters of all local markets and in every major city. New listings increased by 3.2% month-over-month. The MLS Home Price Index increased 2.7% from September and 23.4% annually.
Despite the large monthly increase in home sales, the number of transactions declined 11.5% annually from the record levels seen in October 2020.
“2021 continues to surprise. Sales beat last year’s annual record by about Thanksgiving weekend so that was always a lock, but I don’t think too many observers would have guessed the monthly trend would be moving up again heading into 2022,” said Shaun Cathcart, CREA’s senior economist.
Canadian home sales registered a large uptick in October and remain well-above the 10-year monthly moving average. Source: CREA
“Dearth of Inventories” Characterizes Housing Market: RBC Economics
Canadian homebuyers are struggling to find affordable options amid a “dearth of inventories” across several major markets, according to RBC Economics’ Robert Hogue. In October, inventory levels were down a staggering 55.2% annually in Toronto, 20.5% in Montreal, 48.3% in the Fraser Valley and 35.3% in Vancouver, data showed.
While RBC Economics expects housing demand to cool in the coming year due to affordability constraints and easing pandemic restrictions, “extremely tight demand-supply conditions will keep prices under intense upward pressure” through the second half of 2022.
Labour Market Recovery Intensifies
Canada’s labour market expansion continued in October, as employers added 31,000 workers to payrolls and unemployment fell to 6.7%, according to Statistics Canada. The unemployment rate has now declined for five consecutive months, underscoring the positive impact of loosening pandemic restrictions across the country.
According to RBC, Canada’s unemployment rate is still above the longer-run average of around 6%, which suggests there are 200,000 available workers – a figure that is significantly less than the 900,000 current job vacancies.
The Canadian economy has added jobs for five consecutive months. | Data source: Statistics Canada
Equity Markets Chart New All-Time Highs
Wall Street and Canadian stocks set multiple record highs in November, as investors rallied behind stronger than expected corporate earnings and reassurances from central banks that interest rates will remain lower for the foreseeable future. Following its October 27 meeting, the Bank of Canada communicated its intention to hold the policy interest rate until the 2 percent inflation target is achieved, which it projects to happen in mid-2022. On this news, Canada’s TSX Composite Index broke above 21,000 for the first time. On Wall Street, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index all set new highs in November.
The TSX Composite Index is charting a highly bullish Q4. | Source: barchart.com
Conclusion and Summary
In the short term, Canada’s economic recovery will depend largely on the status of COVID-19. A successful vaccine rollout has ensured that provinces can reopen safely without reverting to lockdown measures that had a negative impact on labour, personal consumption, and economic growth. However, higher inflation has put a strain on affordability, raising concerns about the Bank of Canada’s stimulus campaign.
What Happens Next?
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