Forget Pent-Up Demand, Let’s Talk About Pent-Up Housing Supply

[CREA Cafe – April 21, 2021]

On Thursday, April 15, the Canadian Real Estate Association (CREA) released its national housing statistics for the month of March. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for members.

As everyone already knows, home sales have been setting major records since last summer. In previous posts I’ve said the market wouldn’t be able to keep that up at the busy time of year absent a big increase in new listings—the only stat that hasn’t been setting records recently.

Well, they did, and it did!

The 76,259 residential properties that traded hands via Canadian MLS® Systems in March 2021 was the highest level of any month ever—and by quite a margin—almost 14,000 sales more than the previous record set last July when this current streak first kicked off.

But we already knew that level of demand (and then some) was out there and has been there for months, so this isn’t a huge surprise.

The big story to me was on the supply side. New listings finally joined all the other stats in the record-setting club in March. That burst of supply showed up exactly when you would expect—at the start of the spring market, which is what enabled sales to go as high as they did.

I’ve been wondering and speculating about whether there was some pent-up supply out there from last year, and that maybe it would show up this year to help us start to round the corner on these unprecedented and unsustainable demand/supply imbalances in housing markets across the country. Is this that?

The thinking goes something like this: 2020 was the year home became everything. So, in hindsight it’s not surprising so many people who didn’t have a place of their own in which to ride out this pandemic really wanted one, while at the same time many of those who did have a home to hunker down in were not inclined to give it up.

That really turbocharged a demand/supply imbalance that was already becoming a major issue before the COVID-19 pandemic.

If you accept the above premise, then it stands to reason as we get closer to (and eventually get past) the finish line, or at least a finish line, with respect to both the uncertainty caused and danger posed by COVID-19, that many of the existing owners who wouldn’t sell during a global pandemic will emerge with properties for sale, while at the same time some of the urgency on the demand side could dissipate.

But just as one car doesn’t make a parade, one month doesn’t make a trend. The March numbers certainly did nothing to disprove the pent-up supply idea. It will have to go on for some time to have any kind of lasting effect. Still, given that we’re not going to go back to Goldilocks land (that is: not too hot, not too cold) overnight, any move in the right direction is good news as far as I’m concerned.

Unfortunately, if this pent-up supply story is predicated on the diminishment of the uncertainty and danger posed by the pandemic, then this third wave of COVID-19 that we’re now in could throw a wrench into the works of that supply recovery this spring. Let’s hope it shows up eventually. I guess it’s kind of like (and in a sense tied to) vaccines—the sooner the better!

Getting more people housed and taking the pressure off prices is something we all want to see. In the short-term, what can make that happen with supply coming forward from the existing housing stock. In the long-term, we need to build.

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