Recent data from the Canadian Real Estate Association (CREA) reveals a surprising twist in the market dynamics: while the number of new property listings has soared, home prices continue to inch upward.

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A Snapshot of Rising Home Prices

In January, the composite benchmark price—the average price of a home sold—climbed to approximately $709,200. This increase of 0.5% (roughly $3,600) from the previous month marks a notable recovery, with annual growth turning positive at 0.1% (around $500 more than last year). Although these prices are near the highs recorded in September 2024, they still trail by about 16.8% compared to the record peak in March 2022. The modest price rise is particularly striking given the broader economic uncertainties facing the market.

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Inventory Surge Versus Modest Sales Growth

A closer look at the numbers uncovers a key trend: while home sales in January totaled 26,650 transactions—an increase of 2.9% from the same period last year—the influx of new listings was much more dramatic. 65,054 new listings were added, reflecting a 22.7% year-over-year increase. This means the rate of new listings grew approximately 8 times faster than home sales.

Such a sharp disparity indicates that, even though there is active buyer interest, the overwhelming number of properties entering the market is shifting the balance. More sellers are taking advantage of favorable lending conditions, intensifying competition and setting the stage for potential market recalibrations in the near future.

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The Sales to New Listings Ratio

The impact of this inventory surge is evident in the Sales to New Listings Ratio (SNLR). In January, the SNLR dropped to 40.9%, an 8-point decline from the previous year. This ratio, which compares the number of homes sold to the number of new listings, is a key measure of market equilibrium. Generally, an SNLR below 40% is indicative of a buyer’s market, suggesting that supply is starting to outpace demand. While January is not typically the most active month, the current ratio—the lowest seen since 2019—serves as a warning sign that the market’s underlying demand may be weakening.

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Policy Influence and the Role of Cheap Credit

One significant factor behind these contrasting trends is the influence of recent policy decisions. Over the past several months, policymakers have flooded the market with cheap credit and stimulus measures. This influx has helped sustain buyer activity and contributed to the modest rise in home prices, despite an increasingly oversupplied market.

However, experts, including voices from the Bank of Canada, caution that such measures might be a double-edged sword. While they stimulate short-term activity, overreliance on low-cost credit could eventually undermine long-term affordability and market stability.

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What This Means for Buyers and Sellers

For Buyers:
The current market dynamics might present opportunities. As inventory continues to grow relative to sales, buyers could find increased negotiating power and more options. However, the persistent upward pressure on prices—bolstered by easy credit—suggests that caution is still warranted.

For Sellers:
While the recent price uptick is encouraging, the surge in new listings means that competition among sellers is intensifying. If the trend toward an oversupplied market continues, sellers may face longer listing periods or increased pressure to adjust pricing strategies in order to attract buyers.

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Conclusion

The latest data highlights a complex scenario in Canadian real estate. Prices are rising modestly, even as the market sees an unprecedented surge in inventory—growing roughly 8 times faster than sales. This imbalance, underscored by a declining Sales to New Listings Ratio, signals potential shifts toward a buyer’s market if demand continues to weaken. As policies and credit conditions continue to influence market behavior, both buyers and sellers will need to stay informed and adapt their strategies accordingly.

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Source: Canadian Real Estate Association (CREA) and Better Dwelling