News and Economic Reports

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.

With renewed activity in the residential real estate market in recent months, the seasonally adjusted Teranet-National Bank composite index rose by 1.6% from July to August, the fourth consecutive monthly increase. As a result, the composite index is now just 2.1% below its all-time peak of April 2022, following a record cumulative decline of 8.6% over one year. The widespread nature of August’s rise is also noteworthy, as this is the first time since March 2021 that monthly increases have been observed in all the CMAs included in the composite index. However, there is reason to believe that this strength is likely to be short-lived, given the slowdown observed in the resale market over the last two months in connection with the renewal of the Bank of Canada’s monetary tightening cycle. Although price declines are expected in the coming months due to the growing impact of interest rates and the less favourable economic context, property price decreases should remain limited thanks to the support of historical demographic growth and the persistent lack of housing supply.

September 2023

Following the recovery of the residential real estate market in recent months, the Teranet-National Bank composite index jumped by 2.4% from June to July, the fourth consecutive monthly increase, but also the second highest price increase ever recorded in a single month after the one observed in July 2006. After a cumulative decline of 8.6% since peaking in April 2022, recent rises in the composite index have erased a part of this correction, which now stands at just 3.8%. Interestingly, the recent upturn in prices has been greatest in the cities that have seen the biggest corrections. However, only four of the 32 CMAs covered have completely erased their price declines: Saint John, Lethbridge, Quebec City and Trois-Rivières. Prices could continue to rise in the third quarter, supported by strong demographic growth and the lack of supply of properties on the market. That said, the deterioration in affordability with recent interest rate hikes in a less buoyant economic context should represent a headwind for house prices thereafter.

August 2023

After seasonal adjustment, the Teranet-National Bank composite HPI remained essentially unchanged from March to April, recording a slight decline of 0.1% after a drop of 0.8% the previous month. This stabilization coincides with a resurgence of activity in the property resale market. A record cumulative drop of 8.7% from its spring 2022 peak was recorded during this downturn caused by extremely aggressive monetary tightening. In the coming months, it is highly likely that the composite index will return to short-term growth, supported by the renewed vigor of home sales in a context where supply remains low on a historical basis. This revival of the real estate sector is partly explained by the stabilization of interest rates. Indeed, now that the Bank of Canada has stopped raising its key rate in recent months, some buyers probably perceive less uncertainty and are taking action. A second factor explaining this increase is the strong demographic growth we are experiencing in the country, especially in large urban centers that attract newcomers. It remains to be seen whether this strength in the real estate market will be temporary in a context where interest rates are still high, lending conditions are tightening, and the labour market is not immune to a downturn.

May 2023

Even though the resale housing market is showing its first signs of stabilization and the non-seasonally adjusted Teranet-National Bank Index has seen its first monthly increase in ten months, it is still too early to say that the real estate market in Canada is on the rise. In fact, once adjusted for seasonal effects, the composite index contracted by 0.8% during the month, as price growth is generally stronger in the spring with the start of the high season. It should also be noted that, on an annual basis, the index in March fell by 6.9% compared to March 2022 and thus equaled the record contraction recorded during the 2008-2009 financial crisis. With the Bank of Canada expected to keep its policy rate in restrictive territory for much of 2023 and mortgage rates remaining high, we believe that the impact on property prices should continue to be felt in the coming months. All in all, we anticipate that the price correction that currently stands at 8.8% could continue through the end of 2023 (-5% additional), but this assumes that policy rate hikes are over, and declines begin at the end of the year. Although corrections are observed in all markets covered by the index (except Sherbrooke), the CMAs that have experienced the largest price growth over the past two years are also those that have recorded the sharpest declines to date. Ontario and British Columbia thus appear to be more vulnerable, while the Prairie markets are less so, as affordability problems are less acute.

March 2023

The Teranet-National Bank Index continued to decline in February so that the cumulative decline in prices since their peak in May 2022 totaled 11.2%, the largest contraction in the index ever recorded. The current decline in prices has even surpassed the 9.2% loss in value that occurred during the 2008 financial crisis. With the Bank of Canada expected to keep its policy rate in restrictive territory well into 2023 and mortgage rates remaining high, we believe that the impact on property prices should continue to be felt in the coming months. All in all, we still anticipate a total correction of about 15% nationally by the end of 2023, but this assumes that policy rate hikes are over and declines begin at year-end. Although corrections are being seen in all markets covered by the index, the CMAs that have seen the largest price growth over the past two years are also those that have seen the largest declines to date. Ontario, British Columbia and the Maritimes thus appear to be more vulnerable, while the Prairie markets are less vulnerable, as affordability issues are less acute.

March 2023