Reports

In Q4, affordability worsened for a 14th consecutive quarter as measured by the urban
composite index. All but two markets experienced a deterioration stemming from a 20-
basis points increase for residential mortgage rates, hitting harder the priciest markets in
the country (see table on page 12 for more details). Financing costs were up for a sixth
consecutive quarter which marked the longest streak of rises since the period of ’99-‘00.
In Vancouver, home prices are decreasing but it did not prevent affordability to
deteriorate further amid higher interest rates and declining median annual income. In this
city, our measure for the non-condo segment have crossed the psychological threshold
of 100% as it would now require 101.5% of pre-tax median household income to pay for a
representative home. In other words, this segment is even more out of reach for a median
income family. As it is the case in Vancouver, both segments at the national level
experienced a significant deterioration over the past 3 years but the magnitude of the
worsening has been less pronounced for condos (left chart) which could explain why
prices are still running at a solid pace in 2018 (+6.2% y/y vs. 1.2% for non-condos). That
being said, a moderation in the condo segment should not be ruled out in 2019 as stiff
competition is now coming from the rental apartment option.

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Home prices weakened in the second half of 2018 in most of the metropolitan areas
constituents of the Teranet-National Bank Composite HPI. The Calgary index did not rise
for a sixth month in a row in December. It was a fifth month in a row for Vancouver, and
a fourth one for Edmonton. Weakness became apparent in Q4 for six other metropolitan
areas, when only Montreal and Ottawa-Gatineau experienced home price growth (left
chart). This is the worst 3-month diffusion for December in five years. This conclusion
still holds If we also include in the sample 14 other Canadian metropolitan areas for
which a Teranet-National Bank HPI is available (although not integrated in the national
composite index) – right chart. Higher mortgage rates and tougher qualification rules are
causing the cooling in most major home resale markets in Canada. The recent increase
in vacant new dwellings may also add to downward price pressure in some markets. At
this juncture, we continue to expect a soft landing of the Canadian home resale market.

.January 2019

The Composite 6, which was first launched in December 2008 was initially built to capture the aggregate performance of the Canadian housing market with the richest available data at that time. In 2011, we expanded the Composite 6 by five new cities and reviewed and refined the geographic territory of each city to better align with the Census Metropolitan Area definitions provided by Statistics Canada. The Composite 11 was built with this information in hand and more precisely reflects the rate of change of single-family home prices in Canada.

As a result, the last public report that will contain the Composite 6 index (C6) data will be March 13^th, 2019.  After this date, only Composite 11 will be made available in the public sphere. If you still require the Composite 6 data, it will be available as a commercial offering. You can contact us to discuss options to continue receiving the data. If you have any questions or concerns, please reach out to us at info@housepriceindex.ca

Home price weakness in some major metropolitan areas is evidenced by a second
consecutive decline in the national Composite Index. In the most expensive markets,
new mortgage qualification rules and the rise in interest rates have cooled demand
significantly. For instance, in Vancouver, November was a fourth month in a row without
a rise in home prices, for a cumulative drop of 1.8%. In Toronto, prices declined over the
last three months, for a total loss of 0.4%. Markets are also weak in Alberta, where prices
did not rise for a fifth month in a row in Calgary, and for a third consecutive month in
Edmonton (left chart), for cumulative declines of 1.4% and 1.3% respectively. There are,
however, some areas of strength in the country. In Montreal, for example, home sales
are at a record level so far in 2018 (right chart). With interest rates set to rise more
slowly than previously thought, hopes for a soft landing of the Canadian home resale
market are still warranted.

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December 2018

Home prices are showing signs of weakness at the national level (left chart), but the
market is far from being homogeneous. For example, Vancouver showed no gain for a
third month in a row, for a cumulative loss of 1.2%. Moreover, the weakness extends to
condos as well as to more expensive dwellings. This is consistent with the fact that since
the beginning of the year, home sales declined markedly in both segments. For Toronto,
the picture is mixed, with condos prices still remaining on an upward trend. Montreal is
at the other end of the spectrum. The second largest metropolitan region in Canada
enjoyed the most vigourous home resale market over the last few months (right chart).
But with interest rates set to rise again in the coming months, we don’t see much upside
for home prices.

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November 2018

In Q3, affordability worsened in no less than 9 out of ten urban markets which explains the
13th consecutive deterioration of our urban composite index. Expensive housing markets
such as Vancouver and Toronto slowed down markedly in 2018 and home prices even
declined in Q3 due to the combined effect of rising mortgage rates (up for a fifth consecutive
quarter) and macro prudential measures. Despite lower home prices, homebuyer
affordability failed to improve as wages were down in those markets (left chart). Elsewhere,
Montreal and Ottawa-Gatineau experienced the sharpest deteriorations in affordability
among urban centers in Q3 but for another reason: home prices surged respectively by 2.1%
and 2.5% Q/Q. These markets appear to be unaffected by rising interest rates and tighter
credit standards as shown by resale market conditions being strongly tilted in favor of sellers.
Looking at the national picture, while a significant portion of home buyers have been priced
out of single-family homes, demand is currently strong for condos as shown by prices rising
6.8% over the past year (non-condo prices are flat). As a result, the affordability deterioration
was more pronounced in this segment (vs. non-condo) in each of the last four quarters (right
chart).

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