Treasury
BMO Notes A "Late Thaw" in Canada's April Existing Home Sales
Canadian existing home sales nudged up 0.7% month over month in April from March in seasonally adjusted terms, but no one is going to mistake this for a sign of spring for the chilly housing market, said Bank of Montreal on Thursday.Sales remain 4% below last year's "anemic" levels and about 10% below normal April levels, added the bank, while noting that with new listings edging up, the sales balance turned further against sellers and prices receded a bit further yet.The MLS Home Price Index dipped another 0.1% last month, pulling prices down 4.0% from year-ago levels and a towering 20.5% below the peaks hit just over four years ago -- at the very height of the pandemic housing frenzy in February 2022.While the price declines appear to be ebbing, the reality is that with the national sales-to-new listings ratio dropping to 45.6% in April, there is little prospect for a quick turn anytime soon, said BMO.The Canadian Real Estate Association (CREA) suggests that a ratio between 45% and 65% is consistent with a balanced market. The ratio is scraping the very low end of that generous range, and BMO asserts that 45% is more consistent with falling prices.In fact, some further softness in prices may be precisely what's required to more fully return the Canadian housing market to normal affordability, the bank said. While the big decline in interest rates and home prices over the past few years has improved affordability from the dire circumstances in 2023, Canada is still not back to long-term norms, it added.With the prospect of additional interest rate cuts all but erased -- indeed, market pricing anticipates interest rate hikes ahead -- that leaves only a further decline in prices as the avenue to improved affordability, said BMO. Suffice it to say that if the Bank of Canada actually follows up on its musing about possible "consecutive" rate hikes, sales and, ultimately, prices will surely fall "heavily," it added.As it is, BMO noted, five-year bond yields are now up 30 bps from their average of the past year, already acting as a dampener on the market, without the BoC even lifting a finger.While there are still substantial regional differences, much of the country is dealing with generally "chilly" activity, it said.Expectations for a marked recovery in Canadian housing activity have been dialed back again, with sales dampened by consumer caution amid the upswing in oil-driven inflation and the related rise in long-term interest rates. Given lingering affordability issues in many regions of the country, and the now-distant prospect of any further rate cuts by the BoC, it's tough to see the market springing to life anytime soon, according to BMO.
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