The national housing market continued to elicit signs of a recovery with actual sales up 22.7% from a disastrous 2018. Sales continue to hover above the ten year averages. This pushed the home price index higher once again, up 3.5% from last year and clearly trending higher.

However, what’s more important is to understand the phenomenon that is driving the recent resurgence. Homeowners are not listing their homes for sale. New listings are plummeting, and this is causing another decline in inventory. Here we can see the sales to new listings ratio hit 67% in December, the highest level since October 2009. Generally speaking, a ratio between 40-60% in considered balanced, anything above that tends to put pressure on prices to rise.

Meanwhile, if we take a deeper look at new listings, we can see that on a 12 month rolling average, new listings haven’t been this low since February 2010.

So why aren’t Canadians listing their homes for sale? In most parts of the country, prices have never been higher, certainly an opportune time to cash out, no? I think this has a lot to do with belief systems and interest rates. Let me explain.

First, Canadian housing is on a near thirty year bull market, so the prevailing belief amongst homeowners is that prices always go up, so why sell? Meanwhile, any sudden correction in the market is being met with ample liquidity from global central banks. Under normal circumstances, when asset prices get too hot, central banks raise interest rates and put an end to the party. Today, it is quite the opposite.

This is creating abnormal behaviour, not only are over leveraged buyers not forced to deleverage, they are actually incentivized to take more risk. As they reach for yield in a negative interest rate environment, hoarding assets, such as housing, becomes increasingly more attractive compared to the traditional safe alternatives (savings accounts, GIC’s, bonds, etc). In essence, there is no trigger or incentive at this time for Canadians to cash out.