The sales-to-new-listings ratio (SLR) in Canada was in sellers’ market territory from mid-1999 until the end of 2007. Since then, decreasing sales of existing homes through MLS® have pushed Canada’s existing home markets through the balanced range and into buyers’ market conditions.

A good indicator of price pressure in the existing home market is the sales-to-new-listings ratio (SLR).
New listings are a gauge of the supply of existing homes, while MLS® sales are a proxy for demand.
The SLR is calculated by dividing the number of MLS® sales by the number of MLS® new listings, then multiplying by 100.
A sales-to-new-listings ratio (SLR) below 40 per cent has usually been accompanied by existing house price growth that is less than the general rate of inflation.
This situation is known as a buyers’ market. A SLR ratio above 55 per cent has been associated with a sellers’ market, with home prices generally rising at a pace that is greater than inflation.
When the SLR is between these thresholds, the market is said to be balanced and home prices tend to increase at about the overall rate of inflation. The relationship between market conditions and average prices can be somewhat distorted by the fact that the average prices can also reflect changes in the mix of houses sold.
It is also important to note that, to simplify the analysis, the thresholds used to determine that a market is in sellers’, buyers’ or balanced territory are the same for all provinces. In reality, thresholds can vary from province to province.

The overall Canadian context

There have been significant changes in the SLR over the past few months. As stated previously, the Canadian resale market has been a sellers’ market for quite some time (since about mid-1999).
However, the SLR has trended lower and is now at levels consistent with buyers’ market conditions.
This has occurred in part because of an increase in MLS® listings over the past few months, but mainly due to a decrease in MLS® sales.
The current economic and financial environment is leading consumers to temper their demand for larger so-called “bigticket” items such as housing.

The Western Canada view

As can be seen on, Canada’s western provinces were the first to experience a decrease in demand for existing homes. As existing homes sales decreased, the SLR quickly moved from a sellers’ to a buyers’ market. The decrease in demand reflects in part the uncertain economic environment, and is being compounded by the rapid escalation in house prices in B.C., Alberta, and Saskatchewan in recent years. Manitoba’s housing market has not followed the trend and remains in a sellers’ market.
In B.C., where the market turned quickly from a sellers’ market to a buyers’ market, prices decreased 14.8 per cent from their February 2008 peak, reaching now $412,916. In Alberta, prices de- creased 9.1 per cent from their January 2008 summit and are currently standing at $337,927. In Saskatchewan ($230,457) and Manitoba ($193,790), prices are still near their highest level.

The Ontario and Quebec view

With respect to Ontario and Quebec high levels of new listings and a sudden decrease in existing home sales in the fourth quarter of 2008 caused the SLR to move toward the bottom of the balanced range.
Prices decreased 12.0 per cent from their peak in Ontario. On average, MLS® sales in this province are now closing at $285,943.
In Quebec, prices are relatively stable and the average price on the resale market is $210,702.

The Atlantic Canada view

In Atlantic Canada, meanwhile there is some indication that demand for existing homes is begining to ease. However, MLS® sales in the region have not decreased as much as in central and western Canada. The SLR in New Brunswick and Nova Scotia remains in balanced market territory, while in PEI and Newfoundland, a higher SLR indicates balanced to sellers’ market conditions.
Price growth varies across Atlantic Canada. In New Brunswick, prices are now trending lower at $135,323. At $186,569, prices in Nova Scotia are still at a high historical level. Finally, in Prince Edward Island and Newfoundland, prices are now at or near their highest level. Those provinces are posting average prices on the resale market of $167,607 and $201,879, respectively.

Conclusion

The decrease in housing demand, which started in western provinces, is now being felt in Ontario, Quebec and the Atlantic provinces.
As a result, existing home markets have moved into balanced conditions and recently have progressed into buyers’ market conditions, which causes now much less upward pressure on prices for existing homes. Indeed, the average MLS® price has decreased in 11 of the past 13 months. These conditions support Jan Luistermans’s forecast that average house prices in Canada will decrease by 5.2% in 2009.