Canadian new home prices may have just seen the first sign of cooling in over a year. Statistic Canada (Stat Can) released the New House Price Index for September. The agency said fewer than half of cities saw new home prices advance last month — a drag on annual growth. Annual new home price growth is still elevated, but it was the first pull back since 2019.
Fewer Than Half of Canadian Cities Saw New Home Prices Rise
New home price growth has been on a tear, but finally showed its first sign of moderating last month. Canada’s New Home Price Index made a monthly increase of 0.4% in September. Data from the agency showed fewer than half (48%) of markets saw prices advance last month. Only five of the 27 markets showed prices declined though, with the rest making no change.
The relatively slow monthly growth (it would be big in any other market) dragged the annual rate lower. Annual growth fell to 11.3% in September, almost a point lower than it was in August. That was the highest growth since the 80s, so less than a point off isn’t time for a bailout or stimulus. Though it might be the first sign demand is beginning to normalize. Well, at least demand for credit is normalizing.
Canadian New Home Price Growth
The index price of a new home across Canada.
Source: Stat Can; Better Dwelling.
New Home Prices In Every Canadian City Are Higher Than Last Year
BMO economist Shelly Kaushik highlighted the index in the bank’s Friday research note. “The annual growth in Canada’s New Home Price Index decelerated to “just” 11.3% in September, though still well above the pre-pandemic average,” she wrote.
Even with annual growth off its peak, and a few markets seeing prices slip — no market is lower than last year. “The strength was broad-based with annual growth reported in all metro areas in the survey.”
Low Existing-Home Supply Is Fueling New Home Demand
Existing supply of homes is limited, and high demand is believed to be turning into new home sales. After all, credit is cheap today — that won’t be the case in a few years. Well, at least it won’t be this cheap over the next few years.
“It’s worth noting that robust demand continues to be the driver of price strength. It seems as though a lack of existing homes for sale is leading many people to turn to the new home market in many cities across the country,” wrote the economist.
Though it’s worth remembering new home sales are also heavily sold to investors. Strong demand for existing-homes can also fuel investor demand for these units. That creates supply for those who might not be able to afford the 20% down payment needed for a new home. Though if that’s the case, the investor premium added would mean higher home prices across the board.
The decline in annual growth for new home prices shouldn’t be a surprise considering the data. It’s also likely to see growth grind lower for at least a couple of months as well. The question is whether it stabilizes or turns negative.
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