Reports

Declining transactions in the resale market and rising interest rates continue to weigh on property prices, with the Teranet-National Bank Composite House Price Index falling 0.2% from June to July after seasonal adjustments. This is the first monthly decline since the one seen at the beginning of the pandemic in June 2020. Using the unsmoothed seasonally adjusted index, which is more sensitive to market fluctuations, the decline is even more pronounced, with property prices falling 1.4% from June to July. Moreover, price decreases continue to be widespread across the country. In fact, for all 32 markets where the seasonally adjusted unsmoothed index was available in July, 58% experienced a decline during the month, the same proportion as observed in June, but much higher than those recorded since the beginning of the year. You have to go back to May 2020, at the very beginning of the pandemic when uncertainty was at its peak, to find such a large proportion of markets down. While the Bank of Canada has indicated that it will continue to raise its policy rate and that transactions in the real estate market should continue to decline, we anticipate that the composite index should decrease by 10% by the end of 2023.

August 2022

With the decrease in resale market transactions and the increase in interest rates, property price growth moderated for a third consecutive month, but still remained solid in June at 1.0% after adjusting for seasonal effects. Using the seasonally adjusted unsmoothed index1, which is more sensitive to market fluctuations, the moderation is even more pronounced, with property prices
essentially flat in May and June. While the Bank of Canada has indicated that it will continue to raise its policy rate and that transactions in the real estate market should continue to decline, we anticipate that the composite index should decrease by 10% by the end of 2023. The price declines have already begun to spread across the country. In fact, for all 32 markets where the seasonally adjusted unsmoothed index was available in June, 58% experienced a decline during the month, compared to 34% in May and only 16% in January. We have to go back to May 2020, at the very beginning of the pandemic when uncertainty was at its peak, to find such a large proportion of markets in decline.

July 2022

Housing affordability in Canada worsened by 4.9 points in Q1’22, marking a fifth consecutive quarterly deterioration. The first quarter of 2022 was also the worst quarterly deterioration in over 27 years. Over the last 12 months, the worsening in affordability was the nastiest  in 40 years. For the first time since 1994, it would make more than 50% of income for a representative household to service the mortgage on a representative home in Canada’s main urban centres.

Q1 2022

Despite the monthly increase, annual growth in the composite index fell from its peak of 18.8% in April to 18.3% in May. This deceleration comes as the housing market is experiencing a sharp slowdown due to rising interest rates and deteriorating affordability in recent months. Indeed, there is now a significant gap between the increase in property prices and the borrowing capacity of buyers. Since the beginning of the pandemic, the composite index has grown by 38.7% from February 2020 to May 2022, while borrowing capacity has declined by 5.8%, representing a 44.5% gap. With the continued normalization of monetary policy, we estimate that property prices could decline by 5% to 10% by the end of 2023 to be more in line with the financial reality of households. Even if a decrease in prices is still not observed on the Teranet-National Bank HPI, seasonally adjusted monthly growth was already less vigorous in May, falling from 2.0% in April to 1.6% during the month. Moreover, using the seasonally adjusted, unsmoothed index, which is more sensitive to market fluctuations, prices instead remained relatively stable in May with a small increase of 0.2%.

June 2022

After tying the annual growth record last month, the year-over-year price increase reached a new high of 18.8% in April.  This new record is peculiar, as only Halifax, which is included in the Composite 11 index, also experienced record annual growth this month. This new high is therefore the result of robust growth in all regions. In fact, of the 32 markets tracked, 87% experienced year-over-year price growth of 10% or more in April. The Teranet-National Bank HPI also had some of its most robust month-over-month growth in April thanks to the strength in the resale market in previous months. However, these strong price increases should begin to fade. Indeed, the resale market has slowed significantly over the past two months and the monthly growth in the index appears to have reached a ceiling. Since the Teranet-National Bank HPI is compiled from transactions recorded in the land register, there may be a lag of one or two months with the statistics published by the real estate boards, which are recorded at the time of the purchase offer. We should therefore see a stabilization of prices in the coming months.

May 2022