May home sales fell 7.4%, but on pace for record level this year: CREA

The number of transactions in May was a significant drop compared with a year ago, when the Covid-19 pandemic was spreading rapidly through the country, but the association expects sales to edge toward more typical levels through the latter half of 2021 and into 2022.

The association is predicting 2021 will see transactions rise 23.8% from last year to reach a record-setting 682,900, but fall by 13% to around 594,000 units in 2022.

CREA chair Cliff Stevenson attributed the slowing sales numbers to higher prices, a lack of supply and a general malaise spreading in many markets.

“More and more, there is anecdotal evidence of offer fatigue and frustration among buyers, and the urgency to lock down a place to ride out Covid would also be expected to fade,” he said, in a release.

CREA believes the declines in sales will be largest in B.C. and Ontario, where pre-pandemic bidding wars and soaring prices became even more intense during the health crisis.

It said these declines will create a “Simpson’s Paradox,” where the average price in every province will experience a larger year-over-year increase than the national average because sales will shift away from the most expensive provincial markets.

The association expects the average home price will rise by 19.3% on an annual basis to hit $677,775 this year and then edge up by less than one% to reach $681,500 in 2022.

The highest average home prices are expected in B.C., where CREA forecasts they will reach $883,781 in 2021 and 896,304 in 2022.

Ontario will trail close behind with an average price of $859,533 this year and $887,031 next.

The most affordable housing will be found in Newfoundland and Labrador, where homes will sell for an average $272,964 in 2021 and $279,937 in 2022.

The national average price of a home sold in May was a little over $688,000, up 38.4% from $497,189 during the same month last year.

When the Greater Vancouver and Greater Toronto areas are removed from that calculation, the average price sank by nearly $140,000, CREA said.

The average price in May was $1,179,831 in Greater Vancouver alone and $1,108,462 in the GTA.

Across the entire country, the association said the number of new listings fell 6.4% to 74,466 in May, down from 79,572 in April.

Listings were down in about 70% of markets with the Halifax-Dartmouth region seeing a 32.4% decline compared to April, the biggest drop seen across the country.

The smallest decreases were in Greater Vancouver, Saskatoon, Regina, Trois-Rivieres and Sherbrooke, which were down by less than one% each.

On a sales-to-new listings basis, BMO Capital Markets senior economist Robert Kavcic said the tightest markets remain in cottage country areas like the Okanagan in B.C. and Kawartha Lakes in Ontario.

He attributed the cooling materializing nationally to a combination of buyer fatigue, five-year fixed mortgage rates edging up, policy measures like the bump in the mortgage qualification rate and the stampede out of out larger cities that Canada saw as companies increasingly allowed remote work.

“Home sales have backed off from extreme levels seen in recent months, but current activity is still historically strong and fostering outsized price growth,” Kavcic wrote in a note to investors.

“We believe that sales activity will continue to gradually cool in the year ahead, but it’s going to take higher interest rates to soften the market in a meaningful way.”