Canadian real estate sales cooled last year – by a lot. Canadian Real Estate Association (CREA) numbers show 2018’s sales were the slowest in years. In fact, Canadian home sales made one of the largest declines in a decade. Despite the fact that your Realtor may have shifted to “there’s no national market” mode, there’s going to be an impact.

“Why Do I Care? There’s No National Real Estate Market!”

Realtors love saying there’s no national real estate market, but that couldn’t be further from the truth. CREA, the organization that represents those same Realtors, estimates that every sale generates $64,000 in spin-off economic activity. They also estimate that every 3 home sales results in enough economic activity for one new job. Spin-off activity is typically general household purchases, furniture and appliances, moving costs, renovations, and professional services (financial, legal, real estate, appraisal, etc.). Those professional services represent nearly half of the spin-off dollar value.

Right, but how is this national? Credit liquidity is national, as well as the lenders that issue the majority of mortgages. A rise in home sales means a rise in spin-off activity, creating a stronger economy and easier credit. A decline in home sales does the opposite, shrinking the spin-off activity, and tightening credit. The rise in home sales accompanies the “expansion” of the credit cycle, and the fall accompanies the “contraction” phase. I probably don’t have to tell you what happens to the spin-off activity, and jobs that were created during the contraction. You can read more about the credit cycle and real estate here, but for now let’s just move onto the numbers.

Canadian Real Estate Sales Fell Over 11% In 2018

Canadian real estate sales made a substantial decline last year. CREA preliminary numbers show 458,442 sales in 2018, an 11.1% decline from 2017. Last year’s number is also 2.1% lower than median number of the 10 years prior. Worth noting that these numbers are CREA’s preliminary numbers. Official numbers won’t be announced until February, but the difference is usually in the dozens – not enough to change the trend.

Canadian Real Estate Sales

The unadjusted annual sales for all home types across Canada, as reported through the MLS.

Source: CREA, Better Dwelling.

In terms of the growth trend, this was the biggest decline since the Great Recession. The 11.1% decline in 2018 is on top of a 4.64% decline in 2017. The declines are so far getting larger, and the most recent is the largest since 2008. For those opening a new tab to look up Canada’s last recession, it was in the year that followed the last major drop.

Canadian Real Estate Sales Change

The annual percent chage of unadjusted sales for all home types across Canada, as reported through the MLS.

Source: CREA, Better Dwelling.

Canada’s Economic Spin-Off Activity Contraction

Using CREA economist spin-off activity estimates, we get some interesting estimates on future activity. The drag on economic activity works out to a ~$3.66 billion decline last year, and a loss of ~19,000 jobs. Using a standard capital velocity multiplier, things can get pretty messy, pretty fast. Job losses typically trail the loss of business, often happening in the first year of a recession. That means even though we only saw the economic activity decline, the jobs declines will trail.

Note: Watch for government policy changes to extend credit, which will make things worse. During the Great Recession, Canadian politicians provided even more credit to accommodate non-productive consumption (a.k.a. home buying). The result was the introduction of an inefficiency that led to less-and-less GDP growth for every dollar borrowed. Running a household debt crisis instead of popping a housing bubble would be an interesting one for the textbooks though.

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