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.
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.
The strong performance of the Teranet-National Bank HPI reflects two factors: the intense activity on the home resale market due to the catch-up of sales that would have taken place last spring were it not for Covid-19 and tight market conditions in Quebec, Ontario and the Maritimes Provinces (See our Housing Market Monitor). That being said, a catch-up of sales does not necessary apply to all types of dwellings. This is obvious in Toronto, where the rise in sales was mostly concentrated in dwellings other than apartments (mostly detached, semi-detached and townhouses) outside downtown. At the opposite, the recent trend in apartment sales remained weak. As for Montreal, Quebec Professional Association of Real Estate Boards reported a very significant increase in active listings for condominiums on the Island of Montreal, in contrast with the other geographic areas particularly for single family homes. In both cities, a deceleration of downtown apartment prices may be underway. Indeed, it might have started to appear in the Teranet-National Bank HPI for both metropolitan areas, when we look at unsmoothed (raw) indices for apartments and other types of dwellings. In September, the HPI for apartments departed from the upward trend of the HPI for other dwellings for both CMAs. The situation deserves attention over the coming months.
The Composite index of resale home prices continued to rise in August. Indeed, 10 of the 11 markets were showing an increase in the month with the exception being a flat print in Calgary. The increases in August were consistent with conditions present in the home resale market. Looking at the active-listings-to-sales ratio as published by CREA, half of the provinces were solidly a “sellers’ market” with B.C. and Manitoba very close to showing that same status. This was the result of a new record level of home sales at the national level. The underlying data for the Composite House Price Index was consistent with the sharp rebound in activity. Indeed, the Teranet-National Bank HPI uses a sales-pair methodology to track home prices and the latter were down a mere 1.3% from a year earlier, in sharp contrast after three months of 12-month declines exceeding 20%. It must be said that there was a lot of catching up to be done given the pent-up demand from months of confinement. What’s more, mortgage interest rates have reached a record low and are an additional incentive for those looking for a property. When we seasonally adjust the unsmoothed composite index, August would be up a significant 1.7% from July, the highest monthly change in the last 40 months. Nonetheless, the housing market is facing several challenges in the months ahead. The tapering of income assistance programs in a still-depressed labour market combined with weaker immigration flows should translate into headwinds for housing demand.
As the Canadian real estate market continues to evolve and expand, we aim to provide you with data that gives you a better picture of the national market. In order to do so, we are pleased to announce as of this month’s release, we have expanded our data set for the 26 CMAs to now include data from 6 additional CMAs: Lethbridge (AB), Bellville (ON), Trois-Rivières (QC), Sherbrooke (QC), Saint John (NB) and Moncton (NB). Make sure to check out this new and improved data offering and compare the monthly changes between any six of the new and current CMAs.
The progression in the Composite index last month was the lowest for a month of July in 15 years. This marks a second month of signs that the economic lockdown had an impact on slowing activity in the housing market. It should be noted that the official Teranet-National Bank House Price Index is smoothed using a 3-month moving average and employs land registry data. This means that it currently reflects home price evolution while the sector was still on slow motion. The seasonally adjusted raw index for July is rather showing a 0.9% rebound following two consecutive declines, a development consistent with the strong rebound in home sales happening since April. Does this mean that the housing market will be spared from difficulties in this recession? Not so fast. Pent-up demand accumulated during confinement boosted June and July sales numbers. A look at the 5-month moving average shows that activity on the resale market was rather weak since March. In that sense, we still think that the housing market is facing some challenges. Indeed, households have not yet suffered the consequences of the current economic difficulties. Consumers have benefited from deferred debt payments, and the income assistance programs established by the various levels of government have more than offset labour market losses. The end of those programs and a still healing labour market could mean some headwinds for the housing market at some point.
Last month’s advance in the Composite index was the lowest for a month of June since 2004. This adds to other signs already witnessed in May of a slowing of activity on the housing market due to COVID-19. For instance, the number of sales pairs from which June indexes were derived was the lowest for a month of June since 2001. As in May, a low level of sales pairs was recorded in all the 11 metropolitan areas comprised in the Composite index. Also, June marks the second monthly decline in a row of the seasonally adjusted raw Composite index. The raw index declined in June in six of the 11 metropolitan areas. True, According to CREA, overall Canadian home sales returned to a more normal level, and this should be soon reflected in land registries. But question marks still lie ahead. We expect the Canadian unemployment rate to remain elevated for a while. In this context, demand for housing may decrease due to a reduction in immigration and would-be first-time homebuyers not being able to qualify for a mortgage loan. That said, the homeownership rate is low among workers in sectors hardest hit by COVID-19.
There are two signs that data from land registries reflect the slowdown in home sales activity that started in the second half of March. The first is the 22% y/y decline in the number of sales pairs from which May indexes were derived. This was the largest y/y decline since April 2013 and a clear break in the upward trend that was taking place earlier. There were declines in sales pairs in all the 11 metropolitan areas. The second sign is the slowdown in the seasonally adjusted raw Composite index, which rose only 0.2% in May after three months of gains topping 0.8%. The raw index declined or was unchanged in five of the eleven constituent metropolitan areas. In our view, declines in home prices lie ahead. The Canadian unemployment rate went from 5.6% in February to 13.7% in May, and is expected to remain elevated at least up to the end of next year. In this context, demand for housing may decrease due to a reduction in immigration and would-be first-time homebuyers not being able to qualify for a mortgage loan. At the opposite, supply may be fuelled by homeowners unable to meet mortgage payments and for that reason will look to sell their home.
Based on home sales reported in land registries, resale prices rose at the fastest rate for a month of April since 2010. Moreover, if we consider the 11 metropolitan areas included in the Composite index and 14 other metropolitan areas for which a HPI is available, the index increased in 22 of these 25 regions, the highest diffusion of monthly gains in nine months. Of course, given that the Canadian economy entered into a recession following sanitary measures taken in order to prevent the spread of COVID-19, it is not likely that this momentum will persist. The Canadian unemployment rate went from 5.6% in February to 13% in April, and is expected to remain elevated at least up to the end of next year. In this context, demand for housing may decrease due to a reduction in immigration and would-be first-time homebuyers not being able to qualify for a mortgage loan. At the opposite, supply may be fueled by homeowners unable to meet mortgage payments and for that reason will look to sell their home. In other words, a lasting high unemployment rate could mean downward pressure on house prices.
At the national level, resale home prices were still gaining momentum in March. But this is based on home sales reported in land registries. Home sales reported by real estate boards are timelier, being recorded soon after the sale becomes unconditional. The most important real estate boards all mentioned a clear break of activity during the second half of March due to measures to contain propagation of COVID-19. This was confirmed when CREA reported a monthly drop in home sales from February to March in 25 of the 26 major Canadian markets, with sharp declines in most of the markets covered by the Teranet-National Bank HPI. This cooling of activity should soon be reflected on the house price indexes. We expect the loss of momentum to be more prevalent in the metropolitan markets located in Central and Eastern Canada (Toronto, Hamilton, Ottawa-Gatineau, Montreal and Halifax) which so far have pulled the national HPI up.