Reports

The Teranet-National Bank Composite Index™ continued its correction for a third consecutive month in December, with prices down 0.5% compared to November in a context where the number of transactions on the resale market continues to be weak, despite a rebound during the month. Indeed, persistent affordability issues (despite the recent drop in fixed mortgage rates), combined with a less buoyant job market, have contributed to the decline in property prices. Despite a less vigorous economy, we are not yet witnessing a wave of additional supply on the real estate market. In fact, active listings declined in December, and the number of months of inventory fell from 4.2 in November to 3.8 during the month, helping to limit the fall in prices. For the months ahead, prices should continue to decline despite the support of historical population growth and the shortage of housing supply, as the deterioration in the labour market is set to continue. We expect the composite index to return close to its early 2023 low by late spring, with a cumulative decline of around 8% from its April 2022 peak. For their part, the interest rate cuts expected to begin in Q2 should set the stage for market stabilization in the second half of the year.

January 2024

The Teranet-National Bank Composite Index^™ continued its correction for a second consecutive month in November, with prices down 0.5% compared to October in a context where the resale market continues to lose momentum. Indeed, persistent affordability issues (despite the recent drop in long-term fixed mortgage rates), combined with a less buoyant job market, have contributed to the slowdown in the real estate market. This less favourable economic backdrop has certainly undermined consumer confidence, with consumers more pessimistic about the real estate market than at any time in the past 20 years. Indeed, the net proportion of consumers believing that now is a good time to make a major purchase (such as a property or car) is even lower than at the worst of the pandemic. Over the coming months, prices will continue to fall, despite the support of historical demographic growth and the shortage of housing supply. We expect the composite index to reach its trough set at the beginning of the year again by spring 2024, with a cumulative decline of 8% from its April 2022 peak. However, if the moderation in the job market remains limited and overnight rate cuts actually take place in early 2024, the coming spring could represent a good window of opportunity for some buyers and help stabilize prices.

December 2023

To provide a national index that is even more consistent with activity in Canada’s real estate market, we will be adjusting our calculation methodology.

Currently, the National Composite index is calculated as a weighted average of price index levels of the eleven Census Metropolitan Area’s (“CMA”) comprising it. The weights are based on the aggregate dollar value of dwellings retrieved from the 2006 Statistics Canada Census.

Effective December 19, 2023 the following methodological changes will be in place:

• The weights will be updated periodically to reflect changes in the aggregate dollar value of dwellings in Statistics Canada’s census. Index history from February 1999 will be divided into six reference periods corresponding to census years. Each reference period will have its own set of weights for the composite index calculation based on the most recent census data available during the period.
• Weights will be applied to the monthly variation in the index rather than the index level.
• Historical C11 index values will be recalculated to reflect this methodological change.

Why are we making these updates?

We want to emphasize that these methodological changes are not dramatic nor will they change the story of Canadian single-family home prices over the past 25 years. The difference in C11 between the current and new methodological approaches is minimal. We believe that the new methodology for calculating the composite index offers several advantages:

• The country is experiencing divergent demographic growth across regions which means that the Canadian real estate market is constantly evolving. Rather than keeping the weights constant, a rebalancing of the weights of the different CMA’s included in the composite index will be carried out periodically using the latest census data. This ensures that the index is more representative of the Canadian real estate market and its variability over time.
• The updated methodology is similar to that of the S&P CoreLogic Case-Schiller Index in the United States, facilitating comparison between the two markets.

The Teranet and National Bank teams are here to support you and answer any questions you may have ahead of these changes. If you have any questions or concerns, please contact your account manager.