Reports

One should not rejoice about the first rise in home prices in seven months as May is
historically the second strongest month of the year. In effect, the 0.5% increase
represents the weakest performance on record for a month of May. As a result, the
annual increase moderated to 0.7%, the lowest since the recession (see left chart). While
a combination of stress testing measures, foreign buyer’s taxes and earlier increases in
mortgage rates have contributed to the slowdown, recent data shows that the Canadian
housing market is stabilizing. Home sales increased for a third month in a row in May,
rebounding close to their past ten year average, a development which was made possible
thanks to a booming labour market and a plunge in mortgage rates. In Toronto, both
condos and other dwellings prices showed pullbacks in May but resale market conditions
(see right chart) are not suggestive of a significant deterioration in the coming months
especially since the GTA created a whopping 92K jobs so far this year. The Vancouver
market showed the weakest performance on an annual basis among covered markets (-
4.1%, y/y) but its job market is also firing on all cylinders in 2019 a development that
could have contributed to the strong rebound in resales observed in May (+24%).

June 2019

While the Composite Teranet-National Bank HPI dropped again in April, there are signs of stabilization. April’s decline in the Composite index is the smallest in months. The cumulative decline over this seven-month stretch is only 1.8%, a moderate loss compared to the 2008-2009 recession, and even compared to shorter sequences of drops that occurred since then (left chart). The moderation of the recent price decline at the national level is partly due to Toronto, where the index edged down only 0.2% over that seven-month period. The resilience of the home resale market in the largest urban area in Canada is due to the performance of the condo segment, where the index was up 2.1% over the period (right chart). Judging from the active-listings-to-sales ratio, market conditions on the condo market have been tight over the last three years, suggesting that the upward trend in condo prices in Toronto is unlikely to be interrupted in the near future.

May 2019

In March, the downward trend in home prices continued with the Composite Teranet-National Bank HPI slipping for a sixth month in a row, a first in six years. Moreover, in 20 years of history, this is the first time that the Composite HPI drops in a month of March outside a recession. A few months ago, the home price weakness was mainly noticeable in the westernmost metropolitan areas. Judging from the six-month change in the index, it now extends to nine of the 11 regions comprising the Composite index, the exceptions being Montreal and Halifax. If we also consider 14 other metropolitan regions for which a Teranet-National Bank HPI is computed (although not included in the Composite), we have a price increase in only six of the 25 metropolitan regions considered. This is one of the lowest diffusion of 6-month price gains in March over the history of the index. Home prices are adjusting to the recent rise in interest rates and stricter mortgage qualification rules. But price weakness does not mean collapse. In Toronto, Canada’s largest real estate market, apartment prices have been up for 17 consecutive months, while prices of other types of dwellings declined only 1.4% over the last 6 months. In Vancouver, the most expensive market, employment growing 2.9% in Q1 on a y/y basis should limit further home price declines.

April 2019

In February, the downward trend in home prices continued with the Composite Teranet-National Bank HPI slipping for a fifth month in a row (left chart). Moreover, the weakness extended to most regions. In the 11 metropolitan areas comprised in the Composite Index, only one (Montreal) experienced an increase of the index over the last six months. Among the 14 other metropolitan areas for which we have a HPI, only London and Windsor did so. This was the lowest diffusion of six-month gains in ten years for a month of February (right chart). Home prices are adjusting to the recent rise in interest rates and stricter mortgage qualification rules. But price weakness does not mean collapse. In Toronto, Canada’s most important real estate market, apartment prices have been up for 16 consecutive months, while prices of other types of dwellings declined only 1.2% over the last 6 months. In Vancouver, where employment was up 3.1% on a y/y basis in February, seasonally adjusted home sales stabilized in the beginning of the year, limiting the potential of further home price declines.

March 2019

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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