Canadian real estate’s slowdown is finally beginning to show up in new home prices. Statistics Canada (Stat Can) published the December update to its New Housing Price Index (NHPI). The data shows prices stalled and annual growth made its ninth consecutive deceleration. However, the biggest takeaway was the release—with the agency forecasting price growth without any real reason.
Canadian New Home Prices Stall, Annual Growth Decelerates
First, let’s look at new house price data. Canadian new home prices stalled after the biggest growth in history. At the national level, home prices didn’t change in December, and were 3.9% higher than last year. Solid growth still, but a big change from the 12.2% annual growth peak in August 2021. The peak was the highest since the late 80s bubble, and unusual by any measure.
Canadian New Housing Price Index Change
Annual growth for Canada’s New Housing Price Index.
Source: Statistics Canada; Better Dwelling.
Higher Rates Are Slowing New Prices As Investors Pull Back
The agency released full year data, also showing the slowdown at a higher level. The NHPI increased 7.7% in 2022, slowing from the 10.3% growth seen a month before. Higher rates and reduced sales led to that predictable outcome. Especially since a significant share of demand was investor-based. Higher rates, reduced leverage, and more competitive capital use typically diverts investors, as the US Federal Reserve recently explained.
On the upside, this should help to cool inflation. The NHPI is a significant contributor to the consumer price index (CPI). Though it’s important to remember, the NHPI is still nearly double the target growth rate of CPI. Cooling growth is not the same as no growth, or a contraction.
StatCan Slips In A Forecast For Higher Prices Without Much Reason
StatCan expects the NHPI will continue to show new home prices falling in the first half of 2023. It attributes this to falling lumber prices, and rising rates—but doesn’t elaborate. They’re possibly suggesting that falling lumber prices will improve costs for developers. In theory, this might help them build at lower prices.
The agency also made an unusual move—it forecast that prices will rise soon. “As mortgage rates stabilize and uncertainty in the market calms, housing demand and growth in prices should edge up in the latter half of 2023,” reads the Stat Can note release.
Indexes tend to lag, so expectations of price growth falling in the short-term are common. A forecast reversal is different though, it requires a solid reason. It’s logical to assume mortgage rates will rise and stabilize, then uncertainty will subside. Those are also forecasts though, that also require reasoning.
Compounding the issue with this tiny but reckless statement, is a lack of regulatory consideration. By the second half of the year, investor mortgages will have increased risk weighting. Dollars to doughnuts, that wasn’t considered in this forecast suggestion.
A lot of assumptions are crammed into that one statement, which in itself appears designed to influence the market. It’s reckless, at best, for a national statistics agency. They might as well have just said, “it’s going up because it always does. Too da moon.”
All of this isn’t to say prices won’t rise in the second half of 2023. The argument just requires a little more reasoning, especially since it conflicts with every other forecast. Historically, home prices stall after a bubble, allowing affordability to improve. Virtually every professional forecast, from Oxford Econ to RBC, has called this circumstance. Heck, that’s even the outlook from the real estate industry.
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Not a good look SC. This is information shaping, and the agency should be held liable for a forecast that isn’t grounded in an educated thesis.
Correct. Like all other institutions in Canada, SC can’t be trusted. The institutions are being used for political expediency and no longer serve to level playing fields or inform citizens. SC and the current federal government know that a massive amount of Canada’s GDP is generated through real estate. They know if there is a crash, the house of cards will fall.
This is not the only outlier that seems to be based on absolutely nothing. The only consistent characteristic is that most of these outliers are part of, or closely aligned with, the federal government. Remember, the solution to many of Trudeau’s problem lies in ongoing high inflation and laundered money.
Watch this space.
Oh boy, CREA and TREB will be all over this to use to prop up the housing market.
I hope some underwater mortgage holders take them to court over these baseless claims of near-term price growth. Stat Can must be loaded with housing shills to put out this trash.
So this is what it’s like to live in China…
Its just false. Fake news…loses will be massive.
Welcome to the semi-fixed downward trajectory. The longer the Liberal government is in power, the longer Canada is remain under the thumb of a quasi-dictator whose focus is on making its citizens poorer.
Said it before and said it again, housing is too big to fail in Canada which is just what the Feds want. They’d rather let people trades houses off each other at grossly inflated values rather than building the economy organically. It’s the path of least effort.
The powers that “be” always say it’s gonna be great, especially right before the SHTF
I guess StatCan is relying on unearned and foreign capital to continue to be injected into residential real estate, and understanding that newcomers will be used as one of the funnels to do so. After all, to the best of my knowledge, there have been no regulatory changes to stop unearned / untaxed capital from getting spent on real estate (i.e. money laundering, tax avoidance). Even with the federal Prohibition on th Purchase of Residential Property by Non-Canadians Act, which I’ve read and is great in principle, seems to have loopholes that allow it to be circumvented, since it’s not clear how the provisions of this Act will be monitored (after all, we still don’t have a national means by which to identify ownership by named individuals), and who is to enforce it.
I’ve noticed that many government agencies seem to be releasing statements and documents favoring the real estate development / building / sales food chain, and just refuse to look at excess liquidity and non-essential demand (i.e. persons not requiring a principal residence) as drivers of unaffordable (market) housing, certainly relative to local incomes. CMHC seems quite interested in pushing the limited-supply narrative, given the release of their 2018 document ‘Examining Escalating House Prices in Large Canadian Metropolitan Centres’, and their June 2022 document ‘Canada’s Housing Supply Shortages: Estimating what is needed to solve Canada’s housing affordability crisis by 2030’.
I mean – seriously – building our way BACK to affordability? We need median prices to DECLINE, in some cases down by over 40-50%, in order to become aligned with current median incomes (see National Bank of Canada Housing Affordability Monitor reports). Who within the residential development / building / sales food chain would ever want to see more housing built than could be sold, just so that the prices actually drop to that level? It’s in their interest to keep supply just shy of demand (whether it’s rational or not) in order to keep prices as high as possible. And there is no law that says if their costs decline, that they must sell for a lower price – market-wise, that would only happen if there’s sufficient competition (i.e. excess inventory elsewhere) that isn’t selling.
And why is StatCan even talking about home price projections? Isn’t it their job to compile the statistics, as they are, in order for the national public to be informed of the on-the-ground reality around us?
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