Lack of supply is driving real estate prices up in Canada? “Puhleeze,” says BMO


One of the country’s top economists criticizes the supply-price discourse. BMO Chief Economist Douglas Porter sent a note to a customer disputing an inventory shortage. He thinks it’s important to “crush” two myths about the GTA’s exploding home sales in March. Let’s dive into this socket.

Myth 1: last March sales were distorted by the pandemic

GTA home sales had a rocket attached to them, and many dismiss it as a data distortion. The hypothesis is that the pandemic slowed down home sales activity in March 2020. A low number in March 2020 would mean that the 12.3% year-over-year increase appears larger than it is. is not. Porter wants people to understand that this is definitely not the case.

Last year, things were very busy during a month when a pandemic broke out. He said: “Sales and new listings were surprisingly normal in March 2020 (before falling off a cliff in April). Activity over the past month has been incredibly strong by any measure. “

In fact, March 2020 sales were among the strongest on record. “Sales were higher than any previous month, beating the previous May 2016 record by 21%. Listings were the second highest for a month, behind only May 2017. ”For context, May 2017 was the month after Ontario implemented a tax on the sale of homes for non-residents.

GTA home sales on new listings

The number of new listings relative to home sales.

Source: TRREB; Better accommodation.

Myth 2: Home prices are rising due to a lack of supply

High house prices are attributed by many due to a shortage of supply. After all, supply and demand are the main price drivers, aren’t they? If you want house prices to go down, it is enough for the supply to exceed the level of demand. Everyone who has taken Econ 101 feels the need to constantly explain this for some reason.

“How to say politely? FALSE, ”says the famous economist who probably doesn’t need you to remind him of what you learned in Econ 101. He found that new listings for homes in the GTA are actually much higher than habit. “New registrations over the past six months are 30% above last year’s levels (ie the pace before the pandemic).”

Price growth induced by supply and demand only works with rational actors. Currently, the market mechanisms are broken due to panic-driven buying. Fear is not fundamental. “The only reason the supply is low is relative to the white-hot demand,” Porter explains.

Before the complaints that Porter was anti-sourcing, he was very supportive of the sourcing. It has been banging on the supply drum over the past decade, particularly in the Greater Toronto Area. He has repeatedly said that the growth in house prices is due to a shortage of supply. This time it’s different.

The economist is join others to say it’s motivated by exuberance. In an exuberant market, it doesn’t matter how much supply appears. He will be overwhelmed by the fear of missing out on price gains or being left out of the market. It’s a panic hoarding frenzy, launched by the Bank of Canada. It’s more like toilet paper accumulation that it is a problem of shortage of supply.

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