Reports

The Teranet-National Bank HPI rose 0.3% in January, reaching an all-time high. The new record coincides with a historically high volume of home sales in most regions of Canada, coupled with limited supply. The seasonally adjusted unsmoothed Composite HPI has surged 7.8% since July. However, the uptrend of home prices does not encompass all categories of dwellings. In Toronto, the rise in sales volume was concentrated in single-family dwellings outside the downtown area, and did not take in condos. In the Greater Montreal market, a very large rise in condo listings on Montreal Island contrasts sharply with the peripheral areas of that market. In the Greater Vancouver and Victoria markets, as in Toronto and Montreal, price increases for single-family homes have significantly outpaced those for condos. Apart from a shift in preference induced by the pandemic, there is reason to believe the condo segment is affected by low immigration inflows and a persistently high unemployment rate among young workers.

February 2021

Housing affordability in Canada improved in the fourth quarter of 2020, marking a third amelioration in a row. That said, the improvement this quarter was much less impressive. Higher incomes and record low interest rates were almost completely offset by a substantial rise in home prices. Indeed, prices for the national composite rose 4.5% in the quarter, the highest quarterly gain in 11 years. While a 29 basis points decline in our 5-year benchmark mortgage rate has helped keep housing affordable this quarter, the nearly 100 basis points decline for rates since the start of the pandemic is surely propulsion for the current appreciation in home prices. Although the confluence of all these factors has resulted in home affordability having never been better since 2015, there is another hurdle for potential homebuyers. The rise in home prices has translated into a higher down payment. At a national level, there has never been a worse time to accumulate the minimum down payment. Assuming a savings rate of 10% of total median household income, it would now take 60 months (5 years) to save for the minimum down payment (approximately 6%) on the representative home. Still, with interest rates unlikely to rise soon, vaccine rollout ushering a return to normal and market conditions in favour of sellers, home prices are on track to keep growing in 2021. As a result, affordability is likely to
deteriorate on both a mortgage payment as a percentage of income and down payment basis going forward.

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The Teranet-National Bank HPI rose 0.6% to a new high in December. This record coincides with a historically high volume of home sales in most regions of Canada coupled with limited supply. The seasonally adjust unsmoothed Composite HPI has surged 6.8% since July. However, December was the second consecutive month in which index growth was slower than the month before. Moreover, the uptrend of prices did not apply to all categories of dwellings. In Toronto, the rise in sales volume was concentrated in single-family dwellings outside the downtown, not in condos. In the Greater Montreal market, a very large rise in condo listings on Montreal Island contrasted sharply with the peripheral areas of that market. In Greater Vancouver and Victoria, price increases for single-family homes also far outpaced those for condos. Apart from a shift in preference induced by the pandemic, there is reason to think the condo segment is affected by low immigration inflows and a still-high unemployment rate among young workers.

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Housing affordability in Canada`s large urban centers improved in the third quarter of 2020, a second improvement in a row. Higher incomes helped in Q3, but the largest portion of the improvement came in the form of lower interest rates. Indeed, our 5-year mortgage benchmark rate declined 43 basis points in the quarter, driven by central bank easing and improving financial conditions. Combined, income and mortgage rates were more than enough to offset the slight increase in home prices. Our benchmark rate experienced a 62 basis point decline since the start of the pandemic, but that was the second leg of a decline that started in early 2019. As a result, affordability improved substantially in Canada with Toronto, Montreal and Vancouver being now the cheapest since 2016 and the Calgary market being the least expensive on record. It should come as no surprise that such a context helped keep the housing market afloat during the pandemic. Looking ahead, despite rising home prices, affordability is set to improve in the fourth quarter as homebuyers have enjoyed a further decline in mortgage interest rates (25 basis point so far). Will the improvement in affordability be enough to avoid a marked slowdown in the housing market in 2021? With extraordinary government support to household income phasing out and payment deferrals not at play in 2021, the housing market is facing some headwinds given the still recovering labour market. Immigration could also continue to run below targets which would translate into lower household formation than previously thought.

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Teranet-National Bank Composite HPI registered a record monthly gain for the month of November, as it did in October. This performance coincides with the persistence of historically high home sales in many regions in Canada in conjunction with a low supply. Since July, the seasonally adjusted unsmoothed Composite HPI surged 6.3%. That being said, the upward trend in Canadian home prices does not apply
everywhere to all categories of dwellings. In Toronto, the rise in sales was mostly concentrated outside downtown in ground-level dwellings, at the expense of apartments. As for Greater Montreal, the Quebec Professional Association of Real Estate Boards reported a very significant increase in active listings for condominiums on the Island of Montreal, a sharp contrast with the other areas of that region. In Greater Vancouver and Victoria too, price increases of ground-level dwellings are outpacing that of apartments. The outlook for that segment of the market is most impacted by immigration flows and the still-elevated unemployment rate among young workers, that is, potential first-time home buyers.

November 2020

The strong performance of the Teranet-National Bank Composite HPI over the last three months coincides with very strong levels of home sales nationwide. In October, it became clear that the recent trend in sales more than made up for the spring lethargy caused by Covid-19. Furthermore, sales were at historically high levels lately in most regions in Canada. This has translated into an unprecedented diffusion of monthly home price gains over the last three months in the 31 CMAs for which a Teranet-National Bank HPI is produced. That being said, the upward trend in home prices does not apply everywhere to all categories of dwellings. In Toronto, the rise in sales was mostly concentrated outside downtown in dwellings other than apartments (mostly detached, semi-detached and townhouses). On the opposite side, the recent trend in apartment sales remained weak. As for the Greater Montreal, Quebec Professional Association of Real Estate Boards reported a very significant increase in active listings for condominiums on the Island of Montreal, a sharp contrast with the other areas of that region. In fact, for both Toronto and Montreal, the Teranet-National Bank unsmoothed HPI for apartments has clearly decelerated over the last two months compared to other dwellings.

November 2020