News and Economic Reports

The team behind the Teranet-National Bank House Price™ Index is pleased to announce that effective September 20, 2022 we will be releasing a new series of unsmoothed indices. These unsmoothed indices will be offered in addition to the current smoothed indices released on a monthly basis. Previously published indices were smoothed to represent the average changes of the raw index within the last three months.

Given the unusually rapid changes in interest rates, the unsmoothed version of our price measures will allow for earlier detection of changes in market conditions. The provision of the unsmoothed version of the Teranet-National Bank indices will also allow users to adjust the data to their specific needs.

After the monthly release on September 20, 2022 you will notice a few changes to the website. Any graphs or charts used throughout the website will now reference the unsmoothed index. The smoothed index values will still be available when you download the data file, and you will notice the addition of a new column that includes the unsmoothed index value.

If you have any questions about the new unsmoothed index, please feel free to reach out to info@housepriceindex.ca.

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

Since the beginning of the pandemic two years ago, household preferences for housing have changed dramatically, pushing demand up and the supply of properties for sale to a historic low. As a result, the Teranet-National Bank HPI jumped by 31.2% between March 2020 and March 2022 and by 18.4% in one year, a record! Vertiginous price increases have been recorded in many cities included in the index over the past two years, including a 65.0% increase in Halifax, 55.4% in Hamilton and 39.8% in Ottawa-Gatineau (left chart). Judging by the current market conditions, characterized by limited supply, and continued strong demand, prices should continue to rise during the strong spring period – especially since many buyers can still get the mortgage rates that they were guaranteed before the recent increases. However, the upward trend in prices is expected to fade in the second half of the year. Indeed, in the face of the worst affordability conditions on record and the sharp rise in mortgage interest rates in recent weeks, we expect demand to be less robust and price increases to be much more modest.

April 2022

Home prices in 2022 continue to come in strong as the Teranet-National Bank^TM HPI saw a seasonally adjusted monthly growth of 1.7% between January and February. This monthly increase now marks twenty consecutive months of rising housing prices. The recent momentum in home price growth was robust. Indeed, looking on a 3-month annualized basis, home prices registered at 20.5% in February, a level not seen since last summer. The current surge in valuations is likely stemming from strong demand in the resale market which has been favourable towards sellers for a while. There is also reason to think that borrowers who had locked in a lower rate are exercising that option in anticipation of higher mortgage interest rates. The widespread rise in home prices lends some credence to that thesis with prices rising in all 11 markets for a successive month. While this current wave may weaken as buyers are increasingly under pressure from tighter monetary policy, high immigration quotas (432K) should allow for a soft landing. That figure could also be significantly increased by Ottawa’s decision to allow a potentially “unlimited” number of Ukrainian refugees. All in all, while we do think the housing market could lose some momentum during 2022, the aforementioned factors may keep demand persistent.

March 2022

Housing affordability in Canada worsened by 2.1 points in Q4’21, marking a fourth consecutive quarterly deterioration. Over the past year, affordability has worsened at the fastest pace in more than 26 years. As a result, it would take 48.6% of income for a representative household to service the mortgage on a representative home in Canada. This level is a bit more than the last cyclical high seen in 2018Q4 and marks the worst affordability since the mid-90’s with Toronto, Hamilton, Ottawa and Halifax showing levels not seen since the start of this century. While home price growth had its fair share in contributing to declining affordability in Q4, the larger driver was rising mortgage interest rates. Our 5-year benchmark mortgage rate used by our affordability metrics rose 28bps in the last quarter of the year which was the largest one quarter change since 2017Q3 when the central bank raised the overnight rate twice in the same quarter. With investors now anticipating a more rapid increase in policy rates, our benchmark rate has increased by another 30 bps in the current quarter for a cumulative 100 bps since the 2020Q4 rate trough. All else being equal, such an increase would have translated into a 10.7% decline in purchasing power. However, homebuyers opted for variable rate mortgages in a record high proportion (53%) in the second half of 2021. By selecting this option instead of the typical 5-year fixed mortgage, mortgage holders increased their purchasing power by 10% in the fourth quarter. But this escape route is about to vanish in the coming months with the Bank of Canada policy rate on the rise (we expect a 125 basis points increase in 12-months).

Q4 2021

The year 2022 is off to a strong start as the Teranet-National Bank^TM HPI saw a seasonally adjusted monthly growth of 1.7% between December and January. This now makes three consecutive months of stronger price increases than the previous month. This larger price increase coincides with renewed robust demand in the resale market. Indeed, with the mortgage rate increases that began in the fall, and those anticipated in 2022, there is reason to believe that some borrowers who obtained advantageous rates rushed to complete their transactions, which stimulated demand further. As a result, home sales have resumed their upward trend over the past five months. Moreover, this strong level of activity is combined with a historically low supply, which is putting additional pressure on prices. Indeed, the number of months of inventory (the proportion of properties listed for sale over the number of sales in a month) is at a record low of only 1.6 months. Under these circumstances, it would not be surprising to see home prices continue to rise in the months to come. However, with the Bank of Canada’s recent change in tone on inflation, the recent increase in mortgage rates and the additional increases anticipated in 2022, the housing market should gradually lose momentum.

February 2022