Reports

OPINION: The recent loosening of the Toronto home resale market translated into Toronto’s HPI dropping in August. In fact, Toronto’s unsmoothed index (see note on methodology next page), which had already dropped in July, fell 4.2% in August (top chart). That being said, Toronto active-listings-to-sales ratio, an indicator of market conditions, turned from being very tight early in the year to indicating a balanced market in August (at 2.5, its value was in line with its long-term average – middle chart). This should limit the potential for further price correction in the Queen City. Yet more price declines cannot be ruled out given the expected tightening of qualification rules for uninsured mortgages and interest rate increases. These factors are expected to have the most impact on prices in markets where homes are the most expensive (Toronto and Vancouver). We expect home prices to be more resilient in other markets, such as Montreal which has been hot this summer (bottom chart).

OPINION: The recent loosening of the Toronto home resale market was clearly felt on Toronto’s (unsmoothed) subindex for dwellings other than condos, which declined 1.6% from June. Moreover, after seasonal adjustment, this subindex declined 2.2% (see middle table). Based on a survey of real estate boards that we conducted earlier this month, home sales declined on a y/y basis in July in most large Canadian cities west of Ottawa. If that trend persists, home price growth might decelerate in these regions. That being said, home resale markets are rather hot this summer in Montreal (bottom chart) and Ottawa-Gatineau, two areas where the Teranet-National Bank Home Price Index was at a record level in July. Home resale markets have also improved markedly of late in the Maritime Provinces. So, pressure on home price growth that might result from rising interest rates and regulation changes are likely to not affect regional markets evenly. Downward pressure is likely to be more acute in regions where affordability has been eroded by past price escalation, while home prices should be more resilient in regions where homes are more affordable.

Q2 2017: The least affordable market in 9 years

The worsening of affordability in Q2 was the eighth in a row, the longest run in almost 3 decades. As a result, our national composite is the least affordable since 2008 (top chart). Canadian households have been able to fall back for some time on the condo market which was more affordable on an historical basis. However, the deterioration in Q2 was more acute in this segment compared to other dwellings. As a result, even the condo market is now the least affordable in years (worst since 2011). Yet again this quarter, there is still a significant divergence across regions with no less than 6 markets showing an improvement of the situation in contrast with British Columbia and GTA cities that experienced further deteriorations (middle chart). The deterioration of affordability in Canada over the past two years appears to be negatively impacting consumer confidence. The latter is shown by the index related to “whether it’s a good time to make a major outlay such as a house” diverging substantially from the index grouping other questions of the survey (bottom chart). We note that despite labour markets being essentially at full-employment in Ontario and British Columbia, the percentage of respondents considering it a good time to make such an outlay is barely above Alberta’s level which is still coping with the pinch of the oil shock. The mortgage rate hike observed so far in the third quarter will certainly not alleviate this sentiment going forward.

OPINION: The slowdown in Toronto home prices that is expected to result from the implementation of the Fair Housing Plan by the Ontario government has yet to be seen. But given the effect of the Plan on home sales and listings (middle chart),it should only be a matter of time. In the meantime, home prices still give the impression of a dichotomy on the Canadian residential market, the Composite index being pulled by Toronto, Hamilton and Victoria (top chart). Furthermore, the seven Golden Horseshoe regions for which price indexes are available (but not incorporated into the Composite index) display home price increases well over 20% on a year-over-year basis (bottom table). But outside Ontario and B.C., home price rises over the last 12 months are modest if not negative,ranging from -0.6% in Quebec City to +3.3% in OttawaGatineau.

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As part of the ongoing evolution of the Teranet-National Bank House Price Index, the Composite 6 index (C6) will no longer be available for public download. The Composite 11 index (C11), which contains the same markets from the C6, as well as the additional markets of Victoria, Edmonton, Winnipeg, Hamilton and Quebec City continues to be publicly available for download. If you still wish to receive the C6 composite data, please contact us at info@housepriceindex.ca.

OPINION: The dichotomy of the Canadian residential market is more obvious than ever. The strength of the Canadian market is clearly driven by the Greater Toronto Area (GTA), Hamilton, Victoria (top chart) and seven other regions located in the Golden Horseshoe (region surrounding GTA) which are not incorporated in the Composite Index. All these regions have double-digit y/y house price growth and have displayed an impressive trend of price increases lately (middle table). The Non-Resident
Speculation Tax introduced in April by the Ontario government in the GTA and the Golden Horseshoe apparently had a dampening effect on sales and induced a rush to put homes on sale, but its effect on home prices remain to be seen according to the Teranet-National Bank HPI and to benchmark prices published by the Toronto Real Estate Board and by the Guelph and District Association of Realtors. In the meantime, if the measures taken last year to cool Vancouver’s market have worked for the detached and attached segments (with y/y price growth tumbling to 6.8% in May against 29.2% last August, the slowdown is much more mitigated for condo prices (up 17.8% y/y in May). This means that condo affordability in Vancouver could soon become as bad as it was at the beginning of 2008 (bottom chart).

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