Canadian real estate prices are finally stabilizing… if you don’t dig deeper. The Teranet-National Bank Home Price Index (HPI) stopped its decline in December, and actually printed a climb. That’s an encouraging sign, until you break down the index by city. Most of last month’s climb was due to one city, while the majority of markets saw prices fall.
About The Index
The National Bank-Teranet HPI is a different measure of real estate data, that relies on property registry information instead of sales. Many misinformed agents refer to this as a “delayed” measure, but that’s not the case. The use of registry data means that the information is “late” compared to the MLS, but it’s more accurate.
Using registry information means only completed sales are included. In contrast, the MLS uses sales. In a hot market, few sales fall through, so the MLS is definitely a faster read. In a cooling market, sales can start to fall through, as some buyers look for a way out while prices drop. This is often not reflected in MLS data, since a transfer occurs 30 to 90 days after a sale. They each have their trade offs, and neither is better or worse than they other. If you’re really into housing data, it’s best to check both to get a real feel for the market.
Source: Teranet-National Bank of Canada.
First Uptick of Canadian Real Estate Prices Since July 2017
The 11 city composite index received the first uptick in months. The price composite, which includes Canada’s 11 largest real estate markets, rose 0.18% in December. This represents a 9.07% increase from the same month last year. The composite climb was due mostly to a large jump in a single market, rather than the general health of the market.
Source: Teranet-National Bank of Canada.
Toronto Real Estate Still Printing Declines
Toronto, the largest component of the index, actually saw prices drop – again. Toronto’s index had a reading of 236.07 in December, a 0.28% decline from the month before. Prices in the city are now 7.4% lower than the peak we saw in July 2017. The city’s market is now slightly underperforming the national index, with the 12 month increase at 9.02%. Yes, it’s weird that Toronto real estate prices are appreciating less than the general market.
Montreal Real Estate Still Isn’t “Hot”
Montreal, another city that’s been rumored to be warming up, also saw a price decline. December saw Montreal’s index reach 161.63, a 0.18% decline from the month before. Prices in the city are still 7.05% higher than the same time last year. This is the first decline after prices started rising, but this market is still underperforming the index. Funny how there’s almost no data to support the claim that Montreal real estate is hot. Yet we’ve been hearing it so often. Hm…
Vancouver Real Estate Soars To New High
Vancouver real estate saw prices make a huge leap higher. The city’s index is now 281.4, a 1.28% increase from the month before. This represents a huge annual gain of 15.97%, when compared to the same month last year. As the second largest component of the index, this market is the reason it didn’t fall.
This was a misleading index print, since it appeared that Canadian real estate prices were stabilizing. Despite the climb on the index, less than half of markets showed an improvement in prices. Toronto and Montreal, two of the largest index components, actually showed price declines on a monthly basis, and are underperforming the index on the 12 month trend. Vancouver on the other hand, rose so quickly it made the national index rise. Good news for homeowners in one of the world’s least affordable cities. Bad news if you thought it was unaffordable before.
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It’s obvious that most realtors and other stakeholders who stand to benefit from the chaos will prefer to put out misinformation. And I don’t understand why they don’t get it that a healthy market is in everyone’s best interest.
If the market does well within the parameters of a sustainable underlying fundamentals, so be it! But if realtors and speculators want to keep pumping the prices artificially, then there’s trouble.
Well, a healthy market where both the number of sales and prices aren’t significantly skewed higher due to speculation and fictitious demand, is certainly not in the interest the RE industry or anyone involved with it for two main reasons:
Number of sales: Reduced number of sales means reduced commissions, legal fees, appraisal fees, mortgage brokerage fees, etc. for the industry as a whole. A 30% drop in the number of sales literally translates to a 30% drop in earnings for this group.
Prices: Although this doesn’t affect appraisal or legal fees at all and its impact on commissions (mortgage and RE brokers) is subdued, don’t forget that most of these people not only own primary residences but they also participated heavily in the speculative buying that drove the market.
On that note a 10% drop in price translates directly to a 10% loss of equity/wealth if your primary residence is completely paid off. For a primary residence that still has a 50% mortgage on it a 10% drop translates to a 20% loss of equity/wealth.
And for speculative purchases that were mostly leveraged and heavily if I may add, a 10% drop in price can translate to losses as high as 100% of your investment (I use the term lightly as gamble may be more appropriate) depending on when you purchased and if you start including LTT, legal fees, commissions paid on future sale and amounts paid on interest.
The information is totally misleading. I have a partner who works with Cambridge a canadian real estate company and they are buying and buying more. He sent me this link to get me started on some good deals http://bit.ly/2BeBEsU. Im ready we have purchased over 500 homes in Florida and now its time to do the same in canada.
LOL… yeah, enjoy your investment purchases at the top of market. Florida and the Canadian market are two very different worlds.
Montreal is underperforming the market, that’s funny. That’s not what a CEO of a major brokerage said on the news the other day. I’d trust Teranet any day over those clowns. Thanks for the update.
Montreal needs to take a looks at that chart, and realize their tiny climb isn’t “an invasion” of foreign buyers, regardless of how much Realtors there want it to be.
It would be a totally different ball game if the real estate “profession” were subject to rules of disclosure and forward-looking statements that finance professionals are.
You know the system is rotten to the core when they can do this with total impunity from the law for the single largest cost in most peoples’ lives.
Ignorance is like alcohol. The more you consume, the more unreal the rest of the world becomes.
It looks like Toronto caught the ‘me too’ disease from Vancouver, but is now over it. Vancouver is just plain incurable, and will get sicker and sicker until it just dies.
I think it’s time that we finally start talking about the elephant in the room and what neither indices (TREB, or Teranet HPI) or average prices have captured or are actually capturing.
Because of the low interest environment and after the minor correction of the “great recession” significant sums of money were pumped into renovations in Canada after 2010, probably higher than at any other time in Canada’s history. A significant number of people who bought in the 80’s, 90’s and even 2000’s undertook major renovations during this period.
These improvements, often quite significant as a portion of the property’s price skewed these indices and averages higher when the market was going up. For example, if you bought a property for $500k and spent $300k in renovations and sold it 5 years later for $1M, this would have been captured as a 50% increase in price whereas in reality it represented only a 25% increase in price.
The same is true on a falling market. The selling prices are skewed higher because of improvements that these indices and averages aren’t capturing, therefore the prices are falling at a faster rate. For example, if you bough a house for $1M two years ago, spent $400k in renovations and just sold it for $1.2M in December, the price of the house didn’t actually increase by 20% but in fact decreased by 15%!!!
Just something to keep in mind as the next few crucial months roll through…