The Retail Sales, Residential Real Estate Merry Go-Round

05/27/2013 by Alex Carrick

Current-dollar (i.e., not adjusted for inflation) retail sales in March stayed the same as in February, according to Statistics Canada. On a year-over-year basis, they were +1.1%.

The retail sales figure is known to be volatile. Therefore, it’s common to look at the moving average. However, the latest three-month moving or “smoothed” average was also +1.1% year over year.

After climbing at a steep angle from mid-2009 through the fall of 2011, the slope of actual retail sales has diminished to only the slightest of inclines.

The benchmark for retail sales is +5.0% year over year. At that level, consumer spending –which is 55% of total gross domestic product (GDP) in Canada – is quite healthy.

Sales by motor vehicle and parts retailers comprise 23% of the Canadian retail total. In March, this sub-category’s sales performance was +1.7% year over year for “actuals” and only +0.1% when “smoothed”.    

Canada’s retail sales are tame compared with what is occurring south of the border. U.S. year-over-year retail sales in April were +3.7%, both actual and smoothed. U.S. reporting is out front by one month versus Canada. 

In April, U.S. motor vehicle sales (19% of the total) were +7.7% actual and +7.4% smoothed. 

Canadian consumer spending is being restrained by high debt loads, uninspiring job prospects, uncertain housing demand and a stock market that isn’t keeping up with its foreign counterparts.

The opposite is the case south of the border. American consumers are propelling their economy forward. They’ve spent the past couple of years cutting back on their borrowing. Their job prospects have improved and their assets, in the form of home equity and share certificates (e.g., pension and mutual funds), have risen in value.

The latest numbers on the U.S. economy confirm the improvement. May 18’s initial jobless claims figure was only 340,000, down 23,000 from the previous week’s 363,000. The lowest the number has reached since the recession was 327,000 for the week ending April 27, 2013.

Its highest value in the recession was 667,000 for the week ending March 28, 2009.

In the three years leading up to the recession, 2005 through 2007, U.S. initial jobless claims ranged from 300,000 to 320,000. At their current level, they’re nearly as low as one could wish.

The latest data on new single-family home sales in the U.S. is certainly moving in the right direction. The level in the latest month – 454,000 units at a seasonally-adjusted annualized rate (SAAR) – was the second strongest going back nearly five years, to July 2008 (477,000 units).

The best month recently was this January’s 458,000 units. While the number is on the upswing, a full return to “normal” won’t be achieved until a figure close to 700,000 units SAAR is realized. 

The level of unsold units in April stayed about the same as the month before. The number-of-months inventory was a quite low 4.1. A figure close to 4.0 is about as deep as this indicator can be expected to go. The stockpile figure did fall to 3.9 in the first month of this year.

The median sales price (i.e., the point at which half the results are higher and half lower) of new U.S. homes sold in April was $271,600, an increase of 14.9% versus the same month last year.

That’s a substantial jump. Homeowners who have been financially under siege for years (i.e., threatened with foreclosure, etc.) are again starting to feel they made the right decision when they originally decided to invest in their own accommodation.  

The average (i.e., as opposed to the median) new-home sales price in April was $330,800, also +14.9% compared with April 2012.

The median expressed as a proportion of the average was 82%. This will be significant later in this article. The “average” is driven higher than the “median” by a relatively small number of exceptionally high-priced units.

In the U.S. existing homes market, the National Association of Realtors (NAR) has reported continuing improvement in April, although still-tight credit and a low number of offerings are holding back activity levels. Listed inventory was 13.6% lower than a year ago.

April’s seasonally-adjusted volume of existing home sales for singles, townhouses, condos and co-ops was just shy of 5.0 million units (4.97 million) SAAR. The month-to-month change was +0.6% while the year-over-year gain was +9.7%. 

The median selling price for existing homes nationally in April was $192,800, +11.0% from April of last year. According to the NAR, the only way to relieve upward price pressure will be through ramping up new home starts.

The share of total sales made up of distressed homes (i.e., foreclosures and short sales) has eased noticeably. Their proportion has declined from 28% a year ago to 18% in the latest month.

Distressed homes are selling for a discount of between 14% and 16% versus assessed market value.  

The year-over-year unit sales increases have been led by the South (+14.9%) and Midwest (+9.8%). The Northeast (+4.9%) and West (+4.3%) have experienced more “polite” advances.

As for median price levels, the West ($263,600) and Northeast ($245,100) are most expensive. The South ($168,700) is more restrained and the Midwest ($149,300) is draped in modesty.    

In Canada, the debt-to-disposable income ratio is at an all-time high and funds held in real estate and company shares are struggling to make gains. The Toronto Stock Exchange – with strong ties to global commodity markets – is currently underperforming relative to the three major U.S. indices: the Dow Jones Industrial average; the S&P 500; and NASDAQ.

The Canadian residential real estate market has come to a rolling stop and is considering reversing direction. Both new home and resale housing prices are slightly positive, +1.0% to +2.0% year over year, but some urban markets are experiencing declines. New home starts in the latest month were 175,000 units SAAR. For 2012 as a whole, they were 215,000 units. 

This article has discussed home price info from three different sources. Unfortunately, they’re not comparable with each other. In the U.S., the Census Bureau’s figures are for new single-family units only. From the NAR, it’s the median price for all varieties of existing housing. In Canada, the Canadian Real Estate Association (CREA)’s resale price number is the average.

There is a specific reason this takes on significance. Some analysts assert Canadian home offerings are approaching a bubble. One argument supporting this hypothesis is the contention that prices under the red maple leaf are a lot higher than in the land of Uncle Sam.   

The NAR’s U.S. median price in April was $192,800. CREA’s Canadian average price was $380,600. Applying the 82% ratio from earlier in this article to calculate an approximate median price for existing home sales in Canada yields a calculation of $312,000.

In the recession, U.S. home prices fell 33% from peak to trough. Even if an assumption is made that U.S. prices remain one-quarter to one-third underpriced versus what they should be, there is still the suggestion that Canadian home prices are generally higher than in the U.S.

This is a subject for a separate Economy at a Glance.

Total retail sales in Canada
Total retail sales in Canada
Data source: Statistics Canada.
Chart: Reed Construction Data - CanaData.
Canadian retail sales - three months smoothed

Canadian retail sales - three months smoothed

*"Year over year" is each month versus the same month of the previous year.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Data source: Statistics Canada.
Chart: Reed Construction Data - CanaData.
Canada vs. U.S. retail sales – total
Canada vs. U.S. retail sales – total
*"Year over year" is each month versus the same month of the previous year.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Data sources: Statistics Canada and U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
Canada vs. U.S. retail sales – new and used vehicles and parts
Canada vs. U.S. retail sales – new and used vehicles and parts
*"Year over year" is each month versus the same month of the previous year.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Data sources: Statistics Canada and U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.