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A Look at the Oversupply Problem in Montreal

3 October 2012

We have spent the past two days talking about the oversupply problem in the nation’s two biggest markets – Toronto and Vancouver. And while stats and figures for these two cities have been looked at six ways from Sunday for the past two years, there’s another market that often gets overlooked – Montreal. It’s hard to say why Montreal doesn’t garner the attention the other two cities do. It is after all, Canada’s second-largest urban centre behind Toronto. And it does also have one of the worst oversupply problems in all of Canada right now. (All charts once again, have been taken from Macleans.)

It’s clear from the chart below that home sales in Montreal are taking a serious nose-dive. For the first time in 15 years sales in this city were down on a year-to-year basis. But perhaps what’s even more disconcerting is the fact that they’re currently at the lowest levels they’ve seen since 2004 – a good 4 years before the Great Recession hit.

To make the matter even worse, the amount of listings on the market for the month of August was at an all-time high. And, when compared with last year, you can see in the chart below the huge gap that remains between the two. Clearly though, the 2012 mark is well above any other – even those in the pre-recession years. At a time when sales are the lowest they’ve been in almost a decade, the news does not bode well for Montreal.

You can also see this is the case by looking at their months of inventory. This is data that has been compared for both Toronto and Vancouver and if you need a refresher, it’s the amount of time it would take for all current home listings to sell. The higher the number, the longer those homes stay on the market, and a bleaker picture it paints. The one in Montreal is bleak for sure.

When it comes to month of inventory, only 2008 comes close to matching the 2012 stats in Montreal. And 2008 is a year that no one wants to repeat. But if Montreal’s housing stats continue on the way they have been, it looks as though they just might.

So what’s the answer to the oversupply problem? Usually it would be to hope that more buyers enter the market, and that builders and developers stop with all the cranes in the sky until things can cool down a bit and some of the supply can be scooped up by the market. But that’s a harder thing to do today. The latest round of mortgage rule changes are keeping many out of the market, especially first-time homebuyers that might be the most likely to pick up those homes that have been sitting on the market for a little while. Also, interest rates may not spike tomorrow, but an increase is coming, and that has many concerned about putting more money into real estate because they simply think they won’t be able to afford it a year from now. Very responsible thinking indeed, but it doesn’t help much with the oversupply problem.

So, what’s the answer? It might be to simply ride it out. And that may actually be the best thing for Canada’s economy. While the market has been extremely active for the past two years, it’s a pace we simply couldn’t keep up with forever. Economists, analysts, and those in Ottawa have been screaming for a slowdown all the while and now, it looks as though they’re going to get it.

What do you think about the oversupply problem in Canada? And how long do you think before we see a turnaround in some of the numbers? Let us know, either through the comment section below or by liking us on Facebook!

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