Reports

OPINION: With June’s rise, the Composite Index just recovered the ground lost during H2 2017 (left
chart). Does this mean that the Canadian home resale market is about to enter into a
new frenzy? No. June’s rise in the index, impressive at first sight, was in fact weak for
this time of the year. Indeed, if the Index were purged from seasonal patterns, it would
have been about flat over the last three months (right chart). This means that apart from
seasonal patterns, the index merely stabilized lately. That being said, stabilization at a
high level might hide different price trends for different types of dwellings. Condo prices
have risen at a fast clip since the beginning of the year in Toronto and Vancouver (after
seasonal adjustment, 7.8% and 16.3% annualized respectively), while prices for other types
of dwellings held their ground. The resiliency of prices for the latter category of dwellings
is indeed reassuring in view of higher interest rates and stricter mortgage qualification
rules (B20) that dampen demand for the most expensive categories of dwellings.

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June 2018

OPINION: May’s rise in the Teranet-National Bank HPI confirmed the stabilization of home prices that took place since the end of last year, following a correction in H2 2017 (top chart). It is true that this stabilization was accompanied by a shift of price momentum in favor of condos in Toronto and Vancouver. Given the high price level for other types of dwellings in these cities, rising interest rates and tighter mortgage underwriting standards, this shift should not be surprising.  But fortunately, it did not result in an outright price decline for other types of dwellings in these cities (middle chart). In other regions covered by the Composite index, prices have regained most of the ground lost in Q1 (bottom chart). Given that interest rates are likely to continue to increase, a relapse of home prices over the next few quarters cannot be ruled out. But their resilience so far suggests that price declines would then be limited in scope.

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May 2018

OPINION: After a difficult H2 2017, the Composite Index has stabilized in recent months (top chart). Moderate rises will likely continue to characterize the Composite index over the coming months, as conditions in the two major constituent home resale markets, Toronto and Vancouver, are now balanced (current active-listings–to-sales ratios close to their long-term average). Let’s recall that over the last two preceding years, conditions in both markets were very tight, triggering double-digit percentage increases in the Composite index on a y/y basis. We do not think that market conditions will deteriorate significantly from now on in both markets, as sales seem to have stabilized lately

201804 Report

OPINION: Without Vancouver, the Composite Index would have declined in March and in 5 of the 6 preceding months (top chart). Speaking of Vancouver, inferring from Real Estate Board of Greater Vancouver data, seasonally adjusted home sales have declined markedly over the last two months and the listings-to-sales ratio, while still in the sellers’ market territory, moved close to the balanced market boundary (middle chart). This should translate into moderate increases in Vancouver’s Index over the next few months. Apart from Vancouver and Victoria, March indices were below their recent peak in all regions, but the decline was the most obvious in Toronto (-7.3% since last July). This drop was likely triggered by Ontario’s implementation of the 15% Non-
Resident Speculation Tax followed by stricter rules for qualification for a mortgage (B20) and a rise in mortgage rates. As a result, Toronto monthly seasonally adjusted home sales, which had averaged more than 9,000 units over the previous 24 months, fell to less than 7,000 units on average since last May (bottom chart). Following this change in home sales pace, Toronto home resale market turned from very tight to balanced. With the two most important Canadian markets now in balanced territory or nearing it, a soft landing is the most likely outcome for the Canadian residential market.

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Mar 2018_EN

OPINION: The Composite Index relapsed in February, having lost ground in four of the last six months, for a cumulative drop of 1.9%. Moreover, over that period, indices declined in seven metropolitan regions out of 10. Excluding Vancouver, the Composite Index would have declined or stayed put in each of the last six months. Speaking of Vancouver, we estimate that home sales declined markedly in February. Therefore home price pressures may fade out in that area over the next few months, even if for the moment the home resale market remains tight. For Toronto, home sales declined in January and February after a rush in Q4. In February, we estimate that sales were at their lowest seasonally adjusted level since July 2010, with the active-listings-to-sales ratio indicating a 3- month supply, the highest since November 2012 and comfortably in the balanced territory. It therefore seems that the new stricter bylaws on qualification for uninsured mortgages together with increased interest rates are taking a bite at least in the two most unaffordable large markets in Canada.

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Feb 2018 TNB Monthly Commentary