The Canadian resale housing market is on the upswing, say Benjamin Tal and Katherine Judge of CIBC Economics.
In their In Focus newsletter, the economists write: “The housing market was basically frozen in April. Both sales and new listings were down by just under 60 percent, resulting in a relatively stable sales-to-listing ratio and a muted price response.”
May’s numbers were dramatically better.
“As the economy starts to open, that pace will accelerate. With the increased volume of transactions, the real shape of the market will be gradually revealed. We expect that many conflicting factors will result in a softer market.
“We also suggest that the housing market will see an increased divergence between mid- to low-priced units and the more expensive segment of the market. That trend is already evident. The Canadian Real Estate Association uses two price indexes; un-weighted index that reports the average price as is, with no adjustments.
“The other index, the benchmark index, captures the price change of similar units and therefore accounts for any compositional impact on prices. Accordingly, when the price reported by the simple index falls by more than the benchmark index, a compositional shift towards less expensive units is occurring. And that’s exactly what we are seeing now.”
Tal and Judge say the gap between the two measures is at a record low, driven by demand.
“The relatively strong demand for less expensive units is understandable given current economic conditions, but we believe that it also represents increased investor demand for secondary units. In a poll conducted by CIBC, no less than 23 percent of homeowners suggested that the combination of a softer market and lower interest rates is encouraging them to consider purchasing a second unit.”
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