Remember, the April numbers were pretty much the worst ever, so a lot has changed in a very short time.
Clearly a big part of what we’re seeing right now is the unleashing of activity that would have otherwise happened earlier this year were it not for COVID-19 and the strict initial lockdowns. So just as we downplayed the weakness of the numbers back in April, we should also downplay some of the strength of the numbers in July.
That said, pent-up activity does not explain everything. When you have an all-time national sales record along with a low supply, it makes for the tightest market conditions ever and price acceleration to match. That is a hot market. D
While a lot of things have changed this year, much of what we are seeing now with housing is likely just the re-emergence of the same hot markets we were heading into in so many parts of the country back in March. They just went quiet for a few months.
There’s been speculation of ballooning supply and a drop in demand owing to the economic and demographic fallout from COVID-19. Without a doubt, the balance of 2020 and 2021 remain a big question mark.
In order to understand why the numbers are actually showing the opposite right now, you have to think about how many listings are not on the market and how many people are not engaged in selling a home this year because of COVID-19. Inventories are not ballooning, they’re at a 16-year low.
Will some demand be delayed or completely scuttled by COVID-19? Of course! But we may also end up seeing more activity from people choosing to move and change up their living situations who otherwise wouldn’t have in a non-COVID-19 world. And don’t forget how much excess demand had built up heading into 2020. I would argue most of that is probably still around.
So, I think there’s still more room for these numbers to surprise us on the high side. However, with the recovery in new listings having lost a lot of steam since the beginning of the summer, we may have seen a limit to how high sales can go. Those surprises may show up on the price side in the months ahead.
The MLS® Home Price Index (HPI) jumped by 2.3% from June to July and accelerated to 7.4% on a year-over-year basis. That month-over-month increase was the second largest on record behind only March 2017, but it’s consistent with record level sales in an environment of constrained supply.
Of the 20 markets tracked by the index, every single one was up between June and July. That has not happened in more than a decade.
The biggest month-over-month gains, in the range of 3%, were recorded in the Greater Toronto Area, Guelph, Ottawa and Montreal. Although, most markets east of Saskatchewan are seeing prices accelerate in line with strong sales numbers in recent months. Price gains were more modestly positive in British Columbia and Alberta.
In summary, there were very strong numbers in July. Some of it is the snap back of activity that didn’t happen this spring, but a lot of it is likely just the re-emergence of the same market conditions we were heading into back in March. Sales are looking like they will ease back in August alongside new listings, because you can’t buy what’s not for sale. With extremely tight markets in many parts of the country, expect to see continued strong competition among buyers for the homes that do come on the market.
See you in September.
CREA
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