Reports

OPINION: In July, the dichotomy in the Canadian home resale market continued, with large monthly 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 been flat over the last 12 months (top chart). Vancouver has been in a league of its own, with monthly price rises above 2% in each of the last six months. That sequence saw a surge in condos prices as well as for other types of dwellings (left panel middle chart). Some observers believe that prices are going to cool in Vancouver based on last July’s 19% drop in home sales on a y/y basis and to the implementation of a 15% property transfer tax on foreigners purchases of residential real estate. However, despite the drop in existing home sales, the Vancouver resale market remains tight (middle chart – right panel). Furthermore, the labour market in Vancouver is red hot, with employment having risen 7.4% on a y/y basis (bottom chart). These two factors provide support to house prices. The story is not solely about alleged foreign capital flows.

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OPINION: In June, the monthly rise in home prices was the strongest in a decade, with all markets except for Calgary and Edmonton experiencing gains above the historical norm. What is even more striking is that this surge occurred after strong gains in the previous months. As a result, on a year-to-date basis, home prices are already up a whopping 6.8%, well above the historical average of 4.0% for the first six months of the year. On a year-over-year basis, the dichotomy continued in the Canadian housing market with gains for the sub-index which includes Toronto, Vancouver, Victoria and Hamilton accelerating over 16% while deflation persisted in the seven other regions covered (top chart). In regards to the continued strength in Vancouver and Toronto, it’s worth noting that both labour markets are still booming, a sharp contrast with what we observe in the rest of the country (middle chart). Employment at record highs combined with record low supply (bottom chart) and mortgage rates continue to fuel home price inflation in those markets.

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Canadian home prices rose to another record high in July but moderating gains provided more evidence that the real estate market is cooling, according to a national benchmark index.

OPINION: The dichotomy continues on the Canadian home resale market. Year-over-year price growth exceeds 10% in Vancouver, Victoria, Toronto and Hamilton, while deflation persists in the seven other regions covered (top chart). New trends are also emerging. First, Vancouver is in a league of its own with prices up more than 20% over the last twelve months. Second, the surge in house prices in that city does not anymore mostly characterize single-family homes (price up at a record 25.1% in May) but also condos (prices up 13.9% in May against 6% in January – middle chart). To a lesser extent, this new trend also applies to Toronto. In that city, availability of land had restricted the supply of low-rise residential buildings, and steep house price growth used to be concentrated in that segment. But with record sales of apartments since the beginning of the year, condos prices have moved up in sync with those of other types of dwellings lately (bottom chart). The generalization of steep price growth to condos should feed concerns about affordability in these metropolitan areas and household indebtedness.

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OPINION: For those living in Vancouver, Victoria, Toronto and Hamilton, the housing boom continues. Quite a contrast with the seven other metropolitan areas covered by the Index, where prices have on average declined on a y/y basis over the last ten months (top chart). Within the group of four hot housing markets, Vancouver is in a league of its own, with a y/y price gain of almost 20%. It must be said that the resale market in that metropolitan area is very tight judging from active listings and sales published by the Real Estate Board of Greater Vancouver (middle chart). While some will keep blaming foreign capital for the housing boom in Vancouver and Toronto, it’s worth noting those cities are also blessed with the strongest labour markets in the country and hence are able to accommodate large migration flows (bottom chart – left panel). Especially in Vancouver, existing home sales are at a historically high level while supply is at a trough. Fortunately, real estate promoters and homebuilders are aware of that situation. Consequently, housing starts in Vancouver since the beginning of the year were almost 50% above the highest levels of the previous 15 years (bottom chart – right panel). This reaction in new housing construction should sooner or later help alleviate the price pressure on Vancouver’s housing market.

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