How October Home Sales Data Release Impacted Canadian Real Estate Stocks?

Summary

• Real estate stocks have been trending since the CREA released its October statistics this week.
• The recent data showed that Canada’s home sales figures fell 0.7 per cent in October from September’s record high.
• The S&P/TSX Capped REIT Index is down nearly 16 per cent this year, but it has recorded a growth of 12.73 per cent quarter to date.
• The national average of home price in Canada hit a record high of C$ 607,250 in October 2020, up 15.2 per cent year over year.

Home sales in Canada slumped 0.7 per cent in October from September’s record high sales, the Canadian Real Estate Association (CREA) reported on Monday, November 16. This was the first drop since April in Canadian home sales numbers, which has been surging amid the coronavirus pandemic.

After hitting a snag earlier in the year due to the COVID-19 pandemic, Canada’s housing market has been soaring since June on the back of the record-low benchmark interest rates. Another factor that contributed to the rise in home sales was the demand for more spacious homes in the light of the social distancing protocols. This climbing demand saw home prices and sales rates skyrocket to record highs in the latter half of the year.

However, data from the recent CREA report suggest that Canada’s housing market may be finally cooling off after a hot streak.

Let’s take a closer look how the country’s real estate stocks have per formed recently.

Canada’s Real Estate Stock Performance

Real estate stocks have been trending since the CREA released its October statistics on Monday.

The S&P/TSX Capped REIT Index is down nearly 16 per cent this year, but it has recorded a growth of 12.73 per cent quarter to date and of 15.97 per cent so far in November.

Units of RioCan Real Estate Investment Trust (REIT) were ranked among trending stocks on the Toronto Stock Exchange recently, registering gains of nearly 20 per cent this month.

RioCan units saw a steep fall in value around March as the markets tanked amid the pandemic. While its price dropped nearly 36 per cent this year, it posted a climb of about 26 per in the last six months.

It is currently trading at C$ 17.25 and has a 10-day average trading volume of 2.63 million.

Canada’s Real Estate Sales In October

The actual sales activity saw a year over year climb of 32.1 per cent in the month of October, hitting a monthly record high by a margin of over 14,000 sales.

In the 10 months between January and October 2020, Canada recorded a total of 461,818 homes sales via the Canadian MLS® Systems. This number was an 8.6 per cent year over year increase from 2019, despite the devastating financial impact of the COVID-19 outbreak on the economy.

This year’s January-October home sales figures have been the second-highest on record, after those of 2016, noted the recent CREA report.

There was a 2.9 per cent rise in the number of newly listed homes in October. While the sales activity of actual new listings was at a record high in the month, it was substantially low in terms of sales margin.

The CREA report noted that while home sales activity in October was up in areas like Montreal, the Fraser Valley, Calgary and Edmonton, it registered a decline in Greater Toronto Area (GTA), Hamilton-Burlington, Ottawa and Greater Vancouver.

The Toronto Regional Real Estate Board (TRREB), in the month of August, had reported a record high sale of 10,775 homes in the Toronto area.

Home Prices In October

The actual national average of home price in Canada hit a record high of C$ 607,250 in October 2020, up 15.2 per cent year over year.

However, the Aggregate Composite MLS® Home Price Index (MLS® HPI) recorded only a slight climb of one per cent month over month in October, according to the recent CREA report. This has lowered the surge since April 2020 to seven per cent.

In the month of October, 38 markets that the benchmark index tracks registered a rise out of the total of 39.

Ottawa, London, St Thomas, Tillsonburg district, etc. posted the largest year over year price gains in October, ranging from 20 to 25 per cent year. Places like Barrie, Hamilton, Niagara, Brantford, Cambridge, Huron Perth, etc. saw home sales price gains in the range of 15 to 20 per cent year over year in the month.

There was a lower price gain of five to 10 per cent year over year in the regions of Greater Vancouver, the Fraser Valley, the Okanagan Valley, Winnipeg, Quebec City, etc. Meanwhile in October, Victoria, St John’s, Calgary, etc. saw less than four per cent year over year climb in price.

Bank of Canada governor Tiff Macklem, back in October, had warned about the financial consequences that higher debt levels could have in the future. As the record-low benchmark interest rates attracted more borrowers for home loans, Macklem said taking on higher loans against their income capacity could result in worrying cumulative debt levels.