Post Category: Research
February 14, 2018
Vancouver again drove the Composite in January

OPINION: Just like it did the prior month, Vancouver drove the Composite index in January – without Vancouver, the Composite index would have retreated for a fifth month in a row (top chart). On a y/y basis, Vancouver’s index for condos surged 23.0%, while the index for other types of dwellings rose 13.5%. The fact is that Vancouver’s home resale market remained tight even after the introduction of a tax on acquisitions by foreigners (middle chart). The same cannot be said of Toronto, where the market turned from tight to balanced after the introduction of a similar tax last April. Toronto’s index was nevertheless up in January for the first time in six months, after the unsmoothed index (see note on methodology on next page) rose for a third month in a row (bottom chart). This firming of home prices in Toronto might reflect a rush to buy with pre-approved mortgages granted before more stringent rules on qualification for an uninsured mortgages were applied starting January 1st. With further increases in mortgage rates still to come (according to CMHC, posted 5y rates were at 4.14% in January against a low of 3.59% last May), it is premature to conclude that home prices have definitely turned the corner in Toronto.

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Post Category: Research
January 11, 2018
Housing starts come back to earth in December

OPINION: Housing starts declined sharply in the last month of 2017 but still managed to beat consensus expectations (211K). A retracement was always in the cards after the unsustainable figure posted in November (251.7K). A good chunk of the decline in December stemmed from an expected fall in multi-unit starts in Ontario (-34.0K) after the latter reached an all-time high in the previous month. Excluding that category, housing starts countrywide were roughly flat month on month. Looking at quarterly data, starts advanced an annualized 13.5% in the fourth quarter, following a +35.6% print in Q3. Despite that jump, it is hard to know whether or not residential construction contributed to economic growth in Q4. True, quarterly data showed a marked increase in multiple starts (+35.8% annualized), but ground-breakings for single units, whose per-unit contribution to GDP is greater, slumped 28.6% in annualized terms. One thing is for sure: 2017 has truly been a banner year for residential construction in the country, with starts totaling 220.5K, the best figure in ten years. Such a performance is unlikely to be repeated in 2018. Indeed, with the implementation of the new B-20 guidelines for mortgage lending, and considering that the Bank of Canada

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Post Category: Research
December 12, 2017
You get a house, I get a house, we all get a house

November Housing Starts

FACTS: Housing starts reached 252.2K units in November,
rising 29.5K (13.2%) from the level in October (top chart).
The monthly increase can be explained by a 25.3K (16.9%)
advance for multiple starts in urban areas, which
complemented the smaller rise for singles – the latter grew
4.2K (7.5%) to 60.4K. Rural starts, for their part, edged
slightly down 0.1K (-0.4%) to 16.8K. Starts declined in
British Columbia (-8.5K), Quebec (-5.4K), Saskatchewan (-
1.3K) and New Brunswick (-0.9K) but those were more than
offset by gains in Ontario (+37.9K), Alberta (+4.8K),
Manitoba (+1.5K), Nova Scotia (+1.2K).

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Post Category: Research
November 15, 2017
Resale home prices fell again in October

OPINION: The last two monthly declines in the Composite index are mostly due to Toronto (top chart), but there are signs that the downward pressure on prices in that city is fading. For instance, its unsmoothed index (see note on methodology next page) fell 0.7% in October after declining 3.7% in August and 2.1% in September (middle chart). Following the introduction last April of a tax on foreigners’ acquisitions, market conditions (as depicted by the active-listings-to-sales ratio) loosened in Toronto. But they went from extremely tight to balanced (active-listings-to-sales close to its long-term average – bottom chart). Furthermore, market conditions have stabilized over the last few months. Balanced and stable market conditions support the view that downward pressure on home prices is fading in that city. Market conditions evolving from tight to balanced is a positive development for affordability. Unfortunately, this cannot be said of Vancouver, where conditions remained tight despite the implementation in August 2016 of a tax on foreigners’ acquisitions. In the latter city, prices of condos (the most affordable category of dwellings) rose more than 17% over the last 12 months.

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Post Category: Research
November 15, 2017
October housing starts surprise on the upside

OPINION: Housing starts were better than consensus expectations in October. Following a drop in September, Canadian residential construction increased and continued to perpetuate a level that is higher than demographic needs (estimated to be around 190K). Starts in the Toronto market dropped over 20% after a 34% drop the prior month. A more normal level of the active listings to sales ratio in that city (a measure of the resale market) helps contextualize decays in residential construction (middle chart).

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Post Category: Research
November 03, 2017
Rising mortgage rates hurt affordability in Q3

Affordability worsened for a ninth quarter in a row in Q3, the longest run in three decades. It’s worth noting that the Q3 deterioration – the most acute in 9 quarters – was exacerbated by the impact of higher mortgage rates resulting from Bank of Canada summer rate hikes (top chart). At the national level, more than 70% of the deterioration in affordability was due to higher interest rates; in Toronto, it was 90% (top chart). In Vancouver, affordability fell by the most since 1994 as potential homebuyers were also hit by a surge in home prices. As of Q3, the Toronto and Vancouver markets are now the least affordable since the early 1990’s (middle chart). Given the Bank of Canada’s stated intention to continue the normalization of monetary policy over the coming year, we expect a cumulative increase of about 100 basis points for the 5-year mortgage rates from the trough. Historically, such a change may have had a limited impact on the housing market but this time could be different. Twenty years ago, a 100 basis points increase in mortgage rates would have caused a deterioration of our national affordability measure by 3.5 percentage points. Today, a similar increase has an impact 60% larger given much higher home prices. The Toronto and Vancouver housing markets are particularly more sensitive to rising interest rates compared to other cities (bottom chart). This, combined with more stringent qualifying criteria for uninsured mortgages announced last week by OSFI, means that those markets are poised to experience home price declines in 2018.

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October 12, 2017
Negative print for national index in September

OPINION: September’s decline of the national composite HPI is the largest in seven years (top chart), due to the fall of Toronto’s index. The Toronto’s unsmoothed index (see note on methodology next page), has shrunk in each of the last three months, for a cumulative loss of 7.5% (middle chart). Many might worry about the fact that the last time we saw a string of monthly declines of such magnitude was during the last economic recession. They should not. Market conditions on Toronto’s home resale market went from being very tight at the beginning of the year to balanced, as suggested by the active-listings-to-sales ratio which, at 2.5, stood at its average long-term value in September (bottom chart). The ratio is still very far from its peak level of 6.5 experienced during the last economic recession. Moreover, market conditions appear to have stabilized over the last four months. If that is the case, a large part of the price correction to be seen in the Toronto home resale market might be behind us.

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July 12, 2017
Index still rising in June

OPINION: The slowdown in Toronto home prices that is expected to result from the implementation of the Fair Housing Plan by the Ontario government has yet to be seen. But given the effect of the Plan on home sales and listings (middle chart),it should only be a matter of time. In the meantime, home prices still give the impression of a dichotomy on the Canadian residential market, the Composite index being pulled by Toronto, Hamilton and Victoria (top chart). Furthermore, the seven Golden Horseshoe regions for which price indexes are available (but not incorporated into the Composite index) display home price increases well over 20% on a year-over-year basis (bottom table). But outside Ontario and B.C., home price rises over the last 12 months are modest if not negative,ranging from -0.6% in Quebec City to +3.3% in OttawaGatineau.

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Post Category: Research
Post Category: Research
May 23, 2017
Canada Watch

Canadian CPI inflation continues to surprise on the downside despite robust GDP growth, low unemployment, surging home prices, and a depreciating currency. What’s helping keep inflation down? Shelter costs! This heavyweight component of the CPI (27% of the index) is currently growing an anemic 2.2% annually compared to a more robust 2.7% for all other services (a two-year high by the way). As today’s Hot Charts show, the price of shelter in Canada is only up a cumulative 5.7% since 2014 compared to 8.2% for all other services (that’s a sizeable difference of 44%). In order to understand the divergence, we dug a little deeper and found that the new home price index (NHPI) for Vancouver that is used in the CPI calculation is essentially unchanged since 2008 for both its house and land components. As a result, the Homeowner’s Replacement Cost component of the CPI (20% of shelter costs) is no higher in British Columbia than it was in… 2005! Note that the NHPI is also used for the calculation of the Mortgage Interest Cost component of the CPI (12% of Shelter costs) which, incidentally, remains stuck at a decade low. We are also baffled by the reported cumulative increase of only 37% for the Toronto NHPI since 2008 (vs. 118% according to resale market data). Also helping keep inflation in check, the Rent component of the CPI (22% of shelter costs) shows rent inflation averaging near a record low of 1% in Toronto, Montreal and Vancouver. Bottom-line: Shelter Cost inflation reported in the Canadian CPI report is eerily low.

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For further information about upcoming reports, please contact:

Kan Zhu
Leader, Data & Advisory Solutions
Teranet Inc.
Phone: 416-360-8863 x 2270
Email:
Michael Pertsis
Director, Mortgage Derivatives
National Bank Financial
Phone: 416.869.7124
Email: