Reports

OPINION: On a 12-month basis, national house prices were growing in January at their fastest post-recession pace (top chart). With prices in Vancouver having declined a cumulative 2.5% over the last four months, the strength at the national level really reflects Toronto, nearby Hamilton and Victoria (top chart). Incidentally, those are the three sole markets where house prices, together with the Composite Index, are at a record level (middle table). In the eight other metropolitan markets covered, house prices have some way to go just to come back to their previous peak. House prices in Toronto currently grow at the highest 12-month growth rate since the inception of the index. This is mostly due to dwellings other than condos (middle chart), where supply is notoriously tight. Given that Toronto is a relatively expansive market, house price growth is weighing on affordability for first time home buyers. This, together with the new rules on qualification for an insured mortgage, should sooner or later take steam out of that market.

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OPINION: National house price inflation has shed some momentum in recent months as Vancouver continues to deflate. Canada’s priciest city experienced its third consecutive monthly decline, and more is in store. The price drop so far was mostly concentrated in dwellings other than condos. This is consistent with house sales decline (since their February peak) mostly concentrated in detached dwellings (top chart). In contrast, according to Toronto Real Estate Board, existing home sales reached another record in 2016, while the market faced a very tight supply (middle chart). We have yet to see it, but sooner or later, low affordability and the new ruling regarding the qualification for an insured mortgage will take some steam out of demand and prices. In the meantime, Toronto, Hamilton and Victoria are the three metropolitan regions pulling up the Composite index growth month after month. Apart from Vancouver and these three regions, house prices have been flat over the last six months (bottom chart).

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OPINION: In Vancouver, prices declined in November for a second month in a row, for a cumulative drop of 1.9%, concentrated in dwellings other than condos. This is consistent with the fact that the decline in house sales since their peak last February started in detached dwellings, and is so far deeper in that category (top chart). Due to measures imposed by government (qualification for an insured mortgage, 15% tax on foreigners’ acquisitions, etc.), house prices still have downside in Vancouver. In contrast, sales continued to rise in Toronto, reaching record levels whether in the apartment category or for other types of dwellings (middle chart). We have yet to see a slowdown in response to the new ruling regarding the qualification for an insured mortgage. Toronto, Hamilton and Victoria are the three metropolitan regions pulling the Composite index up month after month. Apart from Vancouver and these three regions, house prices have risen minimally over the last twelve months or have declined.

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OPINION: In Vancouver, October saw the first monthly house price decline in 22 months. The drop was concentrated in dwellings other than condos, which includes detached homes, the category where sales declined the most since their peak in last February (top chart). Sales should continue to decline in Vancouver due to the new rulings (qualification for an insured mortgage, 15% tax on foreigners’ acquisitions, etc.). We expect home prices to decline 10% overall (20% for detached dwellings) over the next twelve months. In Toronto, prices continued to climb at a fast clip in October (y/y price change of 17.4% is a record for the Queen City), as sales continued to break previous records (middle chart). But we expect activity there to slow following the new ruling on qualification for an insured mortgage. However, we think that the house price decline that will result will not be as large as in Vancouver, given the historically low supply on the home resale market, as depicted by the number of dwellings listed for sale, whether for condo apartments or other types of dwellings.

OPINION: In Vancouver, after seven large monthly house price increases in a row, prices were virtually flat in September (top chart). This is consistent with the recent loosening in the home resale market, as sales dropped each month since their record level last February for a cumulative decline of 44% (middle chart). Prices in Vancouver have not fell so far because market conditions have just started to loosen from the tightest conditions on records. We see home price deflation starting soon (10% expected over twelve months). Toronto is now the red hot market. Home sales broke records in each of the last three months. But the historically low supply (in terms of the number of homes listed for sale) is also contributing to market conditions that are the tightest on records (bottom chart). With such a combination of high demand and low supply, monthly house price growth surged to 2.9% on average over the last four months. While the latest measure (maximum debt-service-to-income ratio for insured 5-year fixed-rate mortgage tested against posted mortgage rate) might reduce demand, the low supply still argues against a significant price decline in the Queen City.

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OPINION: In August, the dichotomy in the Canadian home resale market continued, with large gains in the four metropolitan areas (Vancouver, Toronto, Victoria and Hamilton) that have been driving the national index recently. Apart from these four regions, prices have overall decreased over the last 12 months (top chart). That being said, for the first time in seven months, the monthly price increase in Vancouver was below 2%. Market conditions, although still tight, have eased in that city with the decrease in home sales since their peak last February. That sets the stage for a moderate price correction in Vancouver. In contrast, due to a combination of high sales and shrinking supply, market conditions are the tightest in Toronto since at least 14 years, with the number of dwellings listed for sale representing only 1.1 month of sales (middle chart). As a result, house prices growth in Toronto has accelerated to a monthly average of 3.1% over the last three months. On a year-over-year basis, price increases in these two metropolitan areas have accelerated for condos as well as for other types of dwellings (bottom chart).

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