News and Economic Reports

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

The Teranet-National Bank HPI^TM has seen record growth in 2021. Canadian house prices rose 15.5% year-over-year, breaking the previous peak reached in 2016, before macroprudential measures were imposed to calm the housing market. Price growth reached an all-time high in four of the eleven cities in the index: Halifax, Hamilton, Montreal and Victoria. Although record highs were not observed in Toronto, Ottawa-Gatineau, Vancouver, Quebec City and Winnipeg, price increases in these areas were very strong on a historical basis. Calgary and Edmonton had a less spectacular 2021 on a relative basis, but still recorded their best gains since 2014. The 2021 year also ended strong in December, as the composite index experienced a seasonally adjusted monthly increase of 1.1%, a stronger increase than the 0.6% increase recorded in November. This greater increase in prices coincides with the stronger pace seen in the resale housing market. Indeed, over the past five months, sales have increased and the inventory of properties for sale has remained very low, explaining the recent acceleration in prices. Given that the inventory of properties for sale is at an all-time low, it would not be surprising to see further increases in home prices in the coming months. However, the recent increase in mortgage rates and the increase we expect in 2022 should eventually dampen this appreciation.

January 2022

Home prices rose by 0.5% in the major urban markets after seasonal adjustments in November, a stronger increase than what we observed in the two previous months. It should be noted that from June to October, price growth moderated coincidentally with a diminishing activity in the resale market. However, over the past three months, sales have increased and the inventory of properties for sale has remained very low, which explains the acceleration in prices observed in November. Given inventory at a record low, it would not be surprising to see further increases in home prices in the coming months. However, the recent rise in mortgage rates and the anticipation of more rate hikes next year should eventually put a brake on appreciations. All in all, price growth over 12 months has moderated to 15.2% for the composite index, which remains very high on a historical basis. No less than 90% of the 32 CMA’s posted increases of more than 10% over the past year, the highest proportion on record, which attests to the widespread nature of the increases in the country.

December 2021

The Teranet-National Bank HPI remained essentially stable between September and October after a small increase of 0.1% the previous month. Does this mean that housing prices have entered a dry spell in Canada? Not so fast. It is quite typical to observe a lull in September and October after the summer strength. In fact, the evolution of the last two months was essentially in line with the average of the last ten years for these months. This is still a significant moderation relative to the previous seven months, which were all substantially above their averages. For this reason, the 12-month price growth moderated but remains high at 15.8% for the composite 11. Over this period, no less than 80% of the 32 agglomerations posted increases of more than 10%, which testifies of the generalized nature of the increases in the country. Despite the deterioration in affordability over the past year and our expectation of higher mortgage interest rates going forward, we do not foresee a downward trend in prices for the next few months. This is because although the level of sales has moderated recently, it remains historically high and the inventory of properties for sale continues to be extremely low.

November 2021

It has been a few months now that sales in the Canadian residential market have been decreasing. This slowdown is beginning to have an impact on price growth, with the Teranet-National Bank HPI remaining relatively stable between August and September with a slight increase of 0.1%, the smallest monthly increase since January 2020. For its part, the 12-month price growth came down from its record high observed in August and stood at 17.3% in September. This is the first time in fourteen months that annual growth has been lower than that observed in the previous month. Although the annual price increase in September was lower than what we saw in the previous two months, it was still the third highest 12-month growth in history. In addition, prices remain up 10% or more in 87% of the 32 urban areas surveyed, even though some extremely hot markets are beginning to cool. All in all, barring a more significant rise in mortgage rates, we do not foresee a downward trend in prices in the coming months. It should be noted that the level of sales remains historically high and that the inventory of properties for sale continues to be extremely low.

October 2021

In August, the Teranet-National Bank HPI saw record 12-month growth of 18.4%. This past year has been characterized by widespread price increases in the regions covered by the index. Indeed, prices were up 10% or more in 87% of the 32 urban markets surveyed. In addition, price growth was up 30% or more in 45% of markets. However, this dizzying growth in major urban centers hides a very different dynamic when analyzing the month-over-month variations. In fact, using the unsmoothed composite HPI adjusted for seasonal effects, there have now been five consecutive months in which the monthly increase in prices has been lower than in the previous month. From July to August, prices even remained essentially unchanged (+0.1%). This stagnation coincides with a decrease in activity in the resale market, which is potentially being held back by affordability issues after the staggering price increases. Indeed, home sales have been declining month-to-month for five months now. However, we do not see prices decreasing in the short term as the level of sales remains high on a historical basis and the inventory of properties for sale remains very low.

September 2021