Canadian real estate may have just peaked, according to official data this morning. Earlier this month we took a look at Toronto and Vancouver, and why the top for growth is here. Data from the Canadian Real Estate Association (CREA) confirms the same National trend. Home prices hit a new all-time high in June, and they grew at the fastest rate ever. However, a key indicator for annual price growth turned last month. Using it as a base to model July, growth is likely to decelerate this month.
Canadian Real Estate Prices Rise Over 24%
The price of a typical home in Canada made a huge climb over the past year. The aggregate for the composite benchmark reached $734,500 in June, up 0.78% ($5,700) from a month before. It works out to an increase of 24.72% ($145,600) compared to last year. This is a new all-time record high for the national index, and an unbelievable amount for prices to rise in a year. Especially across the whole country.
Canadian Real Estate Prices
The price of the aggregate benchmark (“typical”) home across Canada.
Source: CREA; Better Dwelling.
Canadian Property Prices Grew At The Fastest Rate On Record
The dollar value isn’t just huge, but the rate of growth is as well — especially at the national level. Prices increased last month by enough to push annual growth higher. The annual rate reached a new record high for the history of the National index.
Canadian Real Estate Price Change
The 12-month percent change in the aggregate benchmark (“typical”) home across Canada.
Source: CREA; Better Dwelling.
Some of you might have noticed the monthly price increase was four digits though. A large number, but headlines have been mostly about 5-digit monthly increases. That kind of stuff just doesn’t slip by, does it? That should be your first sign things have cooled down recently.
Using Annual Growth To Benchmark Recent Performance
Looking at annualized growth confirms the price growth slowdown as well. We’ve gone over this many times, including this month, so feel free to skip this if you understand it. For those that don’t or need a refresher, annualized growth is when a period is projected for a whole year. It’s a simple, but powerful tool, for benchmarking and forecasting.
For simplicity’s sake, all 3-month growth rates will be annualized for the rest of this post.
Analysts use annualized rates to see how short-term performance stacks up. If the 3-month rate is above the 12-month, annual growth is preparing to rise. When the 3-month trend falls below the 12-month, annual growth is preparing to drop.
Which makes sense if you think about it, right? Trends move similar to more recent data as they persist. The oldest data drops from the 12-month trend as it continues. Recent data is also more reflective of the current environment. The 12-month trend is always chasing the faster 3-month. Conversely, the 3-month is always dragging the annual rate around the chart.
Canadian Home Price Growth Most Likely Peaked
Looking at the 3-month trend for the benchmark price, it just crossed below the 12-month. The 3-month rate came in at 18.10% for June, marking it a third consecutive month lower. It may not be interesting at first glance, but June was special. The 3-month trend hasn’t been this much lower since 2018. Back then, it was right before the annual rate of growth fell to nearly zero.
Canadian Real Estate Price Change
The percent change in the aggregate benchmark (“typical”) home across Canada.
Source: CREA; Better Dwelling.
Basic modeling with the annualized data shows it was most likely the peak of annual growth. For the annual rate of growth to stay where it is, the national benchmark price needs to rise 2.02% ($14,800) in July. If the rate wants to grow, it needs to rise even faster.
It’s been done before, so it’s not impossible. It would need a big shift in sentiment (and an epic influx of capital). Considering last month’s growth was a third of the size, it’s unlikely. But good luck trend, I’d love to see that kind of swing happen. It would be like seeing a unicorn majestically appear out of nowhere.
Canadian Home Buying Sentiment To Shift
Let’s not downplay the situation though. Price growth is still extremely high, the odds of the annual rate of growth have just peaked. If the market’s lucky, prices may even climb a little, while the annual rate drops.
A deceleration of price growth is more of a sentiment issue that precedes a shift in the market. Cooling home price growth after a boom often releases inventory. Short-term investors are motivated to sell when they’ve collected peak gains. This adds more supply, helping to dampen growth even further.
Then there’s the shift in buyer mentality. When annual price growth is moving faster, it motivates them to pull the trigger in a rush. When the rate of growth falls, fewer people panic. This has a significant impact on the bid, once again relieving price growth pressure. It doesn’t mean prices are going to fall (at least tomorrow), but it means a shift in sentiment is coming.
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Why did everyone think the government was all of a sudden pumping billions into building new housing supply, and trying to squeeze material costs? Not out of the good of its heart, but residential investment was slowing (peaked in March).
The bubble is how they prop up the economy. Let’s see if they can fight the trend.
Toronto agents are saying everyone suddenly isn’t interested. Prospective buyers aren’t even returning some agent calls according to a broker friend.
Not sure what happened, but it’s almost like everyone said I don’t have time to house shop when Stage 2 hit.
BS. Show me the proof. Houses are still getting bidding wars, the news just won’t report on them.
The Globe just ran a piece where a Toronto real estate broker said, and I quote, ““It feels like it’s slow.”
https://www.theglobeandmail.com/real-estate/toronto/article-toronto-area-real-estate-market-continues-to-slow-down-for-third-month/
You are right Vince!
Over half of the 400,000 immigrants coming to Canada in 2021 alone, are skilled workers. Anyone who really believes that there will be an over supply need to give their head a shake
Why does everyone always blame the press when they do not like the news?
Had to happen sometime. The question is does price growth go negative, flat, or find a floor at 5% or some other absurdly high rate that’s just not as high? Condo buyers think it’s last year, now that they’ve saved enough to play the game a year later.
On the credit side, it look like it’s rising because of bigger debt loads, not higher volumes. Tricky road to navigate.
Negative cap investors still piling in, because they think price growth will outpace the rate of subsidies they pony up for rent. Never underestimate the power of stupid to prop this trend up in cities like Toronto.
The rest of the country is a tough sell though.
Vancouver caps are still, well, better than bonds. Developers still offering full service rental management and guaranteed rental income.
You are an island of sanity in a financially insane world. Remember QE is a new experiment and no one knows the long-term effects yet of running the printing machines 24/7 until they overheat. There will be consequences, exactly what we do know yet. It seems the higher inflation is driven we are to believe the lower it will go. Perhaps this is the true Big Lie. (CPLie)
Immigration has been practically non existent in the past 20 months & our population grew at its lowest rate since 1916. Canada built 17 homes for every person born in Q 4 of 2020. So do the math.
My view is that once the borders reopen demand will exceed supply.
In the last graph, every time there is a dip (like now), it shoots up again. So if history is any indication, it will shoot up again.
Full points for trying. There’s yes, seasonal accelerations occur. A decline in growth this fast is always followed by a decline in home prices.
In the long run, things always go up. In the short run, you might be stuck with a crappy cottage out in the boonies.
Event with interest rates at 0% there is a physical limit to how much debt people can load.
My impression is we are closer to that limit than we are away from it, so that will cap the market from Canadian buy point of view.
Offshore money has its limits as well, people will invest where they get the most returns. If Canadas housing market trades sideways or down, it can be expected offshore money to dry up as well.