Canadian real estate is off to a cool start. The Teranet–National Bank of Canada House Price Index (Teranet HPI) shows a new record was set in February. The record, wasn’t a great one though – it was for price declines. Canada’s biggest markets made the largest monthly decline outside of a recession.
Teranet HPI
The Teranet HPI is a home prices index, that captures movements in home prices for resales. The index was created and run by Teranet, the country’s largest land registry operator, and National Bank of Canada. It’s kind of like the CREA HPI (benchmarks), but rely on a different data source – so they give different results. The difference is largely due to the time of measurement.
The CREA HPI only includes MLS transactions, which excludes 10-20% of transactions. It also means sales that fall through are often included in a board’s initial numbers. Teranet uses land registry data, meaning only on closed sales are included. The problem introduced is it takes time for sales to hit the registry, often interpreted as a “lag” by agents. Both have their place, and their tradeoffs. The CREA HPI is faster, and more close to market than the Teranet HPI. The Teranet HPI has more data, but considered a little slow. Both are worth taking a look at, especially in a volatile, fast-moving markets.
Canadian Real Estate Prices Make Largest February Drop Since 2009
The C11, an aggregate of Canada’s 11 largest real estate market set a new record… just not a good one. Prices across Canada fell 0.4% in February, and are 1.87% higher than last year. The market peak was reached in September 2018, and prices are down 1.43% from there. There’s a lot of gems in those numbers, so let’s unpack them.
Teranet-National Bank HPI C11 (Annual Change)
Composite aggregate of home prices in Canada’s 11 largest cities.
Source: National Bank of Canada, Teranet, Better Dwelling.
Canadian real estate prices made notable monthly and year-over-year (YOY) movements. The monthly decline is the largest for a February in the history of the index, excluding one made in 2009. The YOY increase is the third smallest outside of recession, with only July and August 2018 coming in smaller. Two records prints rarely seen outside of a recession isn’t a great start for the year.
Toronto Real Estate Is Falling Further From Peak
Toronto real estate prices fell in February, but remained higher YOY. Prices fell 0.22% in February, but remain 3.56% higher YOY. Prices peaked in July 2017, and are still 4.04% lower compared to the 3.83% gap the month before. The annual trend doesn’t sound all that bad. However, it may be less important than the fact that prices are falling further from peak.
Toronto Real Estate Prices (Teranet-National Bank HPI)
Annual percent change of real estate prices in Toronto.
Source: National Bank of Canada, Teranet, Better Dwelling.
Vancouver Real Estate Prices Make Second Largest Drop In Index
Vancouver real estate prices made the second largest drop in the C11. Prices fell 0.68% in February, and are down 1.11% from the same month last year. Peak prices were hit in July 2018, and the market is now down 3.87% from that level. The gap from peak is also getting larger in Vancouver.
Vancouver Real Estate Prices (Teranet-National Bank HPI)
Annual percent change of real estate prices in Vancouver.
Source: National Bank of Canada, Teranet, Better Dwelling.
Montreal Real Estate Prices Make Largest Monthly Gain
Montreal real estate prices bucked the trend, printing a new all-time high. Prices increased 0.36% in February, bringing them 5.15% higher than the same month last year. This is a new all-time high, making it the only market in the C11 to print a new record.
Montreal Real Estate Prices (Teranet-National Bank HPI)
Annual percent change of real estate prices in Montreal.
Source: National Bank of Canada, Teranet, Better Dwelling.
Canadian real estate markets printed the largest decline for a February, outside of a recession. Curiously, a lot of real estate data points seem to resemble those rarely seen outside of a recession.
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I hear once the recession kicks off, that’s when real estate starts to really boom.
I’m sure people that derive a lot of their income from real estate are really good about not putting all their eggs in the same basket.
How much is that index inflated from condo prices, that never go down… except in a crash, when they take the majority of the hit?
The information seems incomplete and possibly false. I do see that prices are falling, but the aggregate is misleading.
A sale of a house at $1M in Feb 2019 bought a house that would have sold for $2M in Feb 2017. The average price of $1M is varying is tiny percentiles, but the asset trading hands is of much higher quality than the ‘land-value’ tear down bought in 2017. Is there an index that tracks they quality of the property rather than just the selling price?
I am surrounded by houses that are dropping their listing price by 40% or more. Last week one that listed in December 2018 for $2.3M has relisted for $1.8M. It will sell for $1.28M like its next-door neighbor did in December 2018. That’s not 0.22% of anything, that more like a 45% decline.
Oakville Rob – Agreed.
What is the address on the property that you’re referencing ?
Not sure what you’re getting at Rob.
For the Teranet–National Bank House Price Index™, all properties that have been sold at least twice are considered in the calculation of the index; this is known as the repeat sales methodology. Properties that are affected by endogenous factors are not considered in the estimation. These factors may include:
a) non-arms-length sale,
b) change of type of property, for example after renovations,
c) data error, and
d) high turnover frequency (biannual or higher).
@Oakville Rob House at 2m going for 1m now? Where is this? Oakville? I have seen houses that are 3m+ going for 2m+ but never from 2m to 1m in Toronto.
I strongly believe that house prices went up way too much in the 905 during those golden years and are facing the most painful correction now…but in Toronto, houses below the 1.5m range are rarely seeing the same effect.
Yes, the 905 needs more analysis. Anedotatlly its a fear fest.
Go to HouseSigma and focus on South East Oakville, look at Durham Street. Durham St is almost across the street from Oakville Trafalgar HS. That will give you the area.
In map view select Active listings. 3 will appear. They are listed at about $1.7M. Drill down and you will see that they were purchased for about $1.3M in 2015. Now click on Sold and dial back to 2017. 2 listings will appear, albeit different listings they are comparable houses. They sold for $2.3M to $2.8M. My guess says the current listings will sell for about $1.3M. That’s a change of a more than a couple percent.
I think that stats are not being reported properly.
Oakville is not Toronto.
You say the house listed for $2.3M. Did similar houses transact at that price in the past 2 years or was this a fantasy of the vendor? The listing doesn’t reconcile with your assertion that the house beside them transacted for $1M less in the same month as their listing.
What is important is transaction prices, not list prices.
HouseSigma provides list prices, relisting prices, and final sale price. Those are the numbers I referenced.
Whatevs. Time will tell.
A listing price is not a real price. The list price often gets reset before the sale closes, to show near or over ask.
dead cat
I have seen homes that were selling for 2 million in Newmarket in 2017 having a hard time getting 1.5m now, but in some Toronto neighborhoods they are close or even higher than 2017 peaks. Inventories for sale have exploded in the 905 region while remaining stable in the inner Toronto area ( still tight).
This is a how all correction start. Nice and slow and when speculators finally notice – price decrease velocity increases.
Sign the petition!
“Mr. Morneau, don’t drive up home prices by loosening lending standards.”
https://www.change.org/p/bill-morneau-mr-morneau-don-t-drive-up-home-prices-by-loosening-lending-standards-f32354e9-d7e5-4852-b2b4-d26365433e08
Money contracts around the center which is ontario and toronto. However, to think toronto proper will not come down is naive and ignorant. If anything support for Toronto is based on fear vs fundamentals. Oh it isn’t invreasing by 20% YoY, better get in now! Will a house ever be $500k in toronto/ey? No, but to think EVERY house is $1.2-$3.0 uses questionable logic and believing that just because you live in the 416 you are immune to a correction is just silly. Tock. BD4L.
I expect that the prices will drop to 2010 levels before they increase again. I won’t guess how long that will take, but that’s my bet. At which point I expect they will begin to rise at a similar rate to that of the increase between 1985 and 2010.
I ain’t no Nostradamus, it’s just my bet.
In my hood that would be a 60% correction from peak. I don’t see it, there are too many miserable families in tiny city condos who can afford more than detached 2010 prices with their decently paid jobs. Now if Dougie shrinks the public service and finance jobs get culled, that changes things.
I like when you pop in from time to time Blue. You always give us just what the doctor ordered. Here’s hoping the spring season brings a flurry (or shit slurry) of new listings without any buyers. Maybe you have said it before but where do you see this thing going in Toronto proper, 2013 prices? 2009? I assume not further back if you don’t think homes will go around $500k. And these things usually take years to draw out, right?
Funny thing is I am definitely seeing homes that don’t sell go up for rent, and rentals sitting for way longer than I would expect. One nice full home even just dropped it’s rent $200. I need a bigger place and I think it’s time to pounce. I’ve been reading art of the deal so maybe I’ll be able to knock off another couple hundred.
FinPost: “In Vancouver, for instance, the income required to cover ownership of an average home was $211,000 in 2018, up from $127,000 three years ago. The qualifying income in Toronto was $187,000 in 2018 compared to $103,000 in 2015. In fact, the qualifying income had increased in all large and small housing markets across Canada.”
And this isn’t hyper-inflation why … ?
Exactly. I am convinced official inflation numbers, just like employment and job creation stats, have long ago ceased to provide the information they were designed for. If you have to earn 82% more salary to get a roof over your head (by buying the same place in 2018 vs. 20105); who cares if milk of gas went up by 10% or (I don’t know if that is a good example).
*milk or gas
I don’t understand the data at all, the title of the article seems to be misleading. There are no price declines shown aside from Vancouver, if you’re looking at % change on the graph all housing markets are still showing annual price appreciation as you noted around 3% which is the historical norm for RE. If we are looking at area under the curve (correct me if I’m wrong) housing prices have not come down at all to correct for their explosive growth in the last decade. What would be more useful is showing some representative valuation on the Y axis like 1500sq ft detached home price instead of % change. Does this stat exist? What I cannot surmise from the data, has there actually been any price decline? Or is what’s being shown “slowest home value growth”?
Reading is hard. “The monthly decline is the largest for a February in the history of the index, excluding one made in 2009.” A similar statement was made by National Bank in other newspapers.
The problem with solely using y/y analysis is you can be up y/y, but still lose enough equity in 6 months to have to top up or sell your house. See Vancouver for coming examples.
These are seasonally adjusted numbers. Since it’s adjusted, the monthly data point is more important than the annual one, especially when you factor that seasonal adjustments mean winter numbers are higher than reality to compensate for summer price points.