Canadian real estate prices are dropping, but they’re very far from their peers. US Federal Reserve Bank of Dallas (Dallas Fed) data shows real prices across the country are down in 2018 Q4. Even with the decline, prices are massively elevated compared to other G7 economies.
About The Index
Home prices in this index use real prices, meaning they use a personal consumption expenditure deflator. In non-bankster, that means they’re inflation adjusted using local numbers. A decline in real prices may not be a decline in sticker, so much as a decline in the value of money. In Canada for example, the inflation target is 2%. If met, and prices rise less than 2%, it’s considered a real loss. Yes, even if you pay the same dollar value a year later.
Canadian Real Estate Prices Drop Over 1%
Canadian real estate prices are dropping, and but aren’t quite in a correction. Home prices in Canada declined 1.14% in 2018 Q4, or 1.58% lower than the same quarter one year before. Over the past year, more than two-thirds of the annual decline were made in the last quarter of 2018. Prices are down 7.17% from the peak reached in 2017 Q2. These numbers factor prices across the country, not just in “hot markets.”
Canadian Real Estate Prices
Inflation adjusted index of Canadian real estate prices.
Source: US Federal Reserve, Better Dwelling.
Canadian Real Estate Prices Are Over 52% Higher Than G7 Peers
Canadian real estate prices are the most elevated of any G7 advanced economy. Prices in Canada are up 83.8% in 2018 Q4, from 2005. That’s down slightly from the peak increase of 98.16% in 2017 Q2. Still, the cost of a home increased 53.3% higher than Germany, home to the second fastest growing prices in the G7.
Canada Vs. Other G7 Real Estate Prices
Inflation adjusted index of G7 real estate prices.
Source: US Federal Reserve, Better Dwelling.
Prices Have Increased 4x Faster Than Second Fastest G7 Country
Trying to figure out how normal the increase in Canadian real estate prices are? They are not. Since 2005, Canadian prices increased 4x faster than Germany’s fast growing home prices. They are also growing 7x faster than the UK, the third fastest growing country. For context, US home prices are down 0.52%, over the same period. Canadian prices are now the second fastest falling in the group, but they have a long way to go.
Canadian Real Estate Price Change Vs. G7
The 12 month price change of inflation adjusted Canadian real estate prices, versus other G7 countries.
Source: US Federal Reserve, Better Dwelling.
Since 2005, Canadian real estate prices have outpaced the growth of its G7 peers. Actually, prices have grown the most in any of the 26 countries tracked by the Dallas Fed. Home prices are elevated across the country, not just in major cities. This implies it is more of a credit related issue, than one of scarcity and density. Price are now coming down slightly, but they have a long way to go. Although we hear this time is different.
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Another interesting zoom out issue. It looks like Canadian prices are tripled from 1987, but didn’t even double in the US over that period.
Guyyyyssss, we’re special. Rents rise 17% in Toronto, meh. Rents rise 5% in Berlin, 10s of thousands of people march in the streets.
https://www.dw.com/cda/en/protesters-rally-against-rental-insanity-in-large-german-cities/a-48235915
You can’t have rent rise significantly above the wages of the population. If there’s a premium on living in a city, there should be a premium on wages. Otherwise it doesn’t last very long.
Of course, wages in a city rising 20% year over year would be absurd. They’re always making more people, not any more land. It’s not like people can just get up and move to the US. Oh wait, that’s what they did in the 1990s.
We had the Parkdale protests….you also have to keep in mind many renters are locked in to “old rates” so they are isolated to some degree from the new market rates. Many, many folks are paying $1200 instead of $2400 for a unit. Renovictions are a thing but the scale seems small but is rapidly becoming concerning. If I was looking for protest, I’d look at outflows from the GTA. Canadians are polite, they just leave for greener pastures. They don’t take to the streets.
https://betterdwelling.com/see-ya-local-millennials-are-abandoning-toronto-and-vancouver/
https://www.bloomberg.com/opinion/articles/2019-04-09/german-economy-low-wages-will-help-growth-even-in-bad-times
According to Bloomberg, there are many low-wage Germans who have no chance at upward mobility are now being impacted by a slowing economy.
Perhaps that’s the real reason for the marches against a smaller rent increase…
In 2018 my insurance increased on avg $250 per house per year.
Also in 2018 I renewed my mortgage from 2.69% to 3.69% which increased my mortgage payments by about $80 a month. In total that’s just over 100 per month extra to own a rental property. Unfortunately that cost overtime gets passed to the tenant otherwise there would be no purpose to own an investment property. This year insurance increase $83 per house per year. So you can see how everyone’s either in on the gouging or everyone’s cost keeps going up and passed along. I havent even got into property tax increases….
good thing 5 year fixed can be had for 2.74% for consumers …
commercial lending rates at 3.35% for 10 years is pretty attractive too – for apartment building owners
Speaking of credit, and overvaluation, Steve “Big Short” Eisman: Canada’s bank CEOs ‘extremely ill-prepared’ for credit cycle.
https://www.bnnbloomberg.ca/canada-s-bank-ceos-extremely-ill-prepared-for-credit-cycle-the-big-short-s-eisman-1.1241950
BD nailed the cycle. 👏👏👏
Thanks for getting millennials up to speed, at the same time smart money was doing the math.
I think he might be wrong. The first thing he says is to short RBC. I just received a letter from RBC saying my monthly account fee was going to $15.95. I currently under $5.00 and get a rebate so a pretty big increase, but it sounds to me like Canadian bank CEO’s know they need to make money somewhere and are already doing it.
I don’t know what you are seeing but to me the chart screams opportunity. There are some serious money to be made flipping condos in Japan, they have some serious catching-up to do.
Toronto – “A Place to Grow – Debt”
6ix- LOL! that’s why I moved. Everyone except the rich just chasing their tail to live there.
Get a good job in the city and make 100 to 150k and live somewhere decent and there goes all that money you made just to live there and keep up with the Jones’s.
@MH while reading the charts it would be easy to come to that conclusion but Japan has a population issue ( -0.2%) so it is unlikely to have large real estate price appreciation.
It was my apparently failed attempt at sarcasm. Here is a fun fact, Japanese bonds have negative yield but for some reason Japanese real estate does not care.
https://www.bloomberg.com/markets/rates-bonds/government-bonds/japan
And the BOJ rate is minus 0.1% (yes, minus) but Japanese RE still couldn’t care less.
BTW, Tokyo does not have a population issue.
I like the Eisman interview where he was at a meeting all about Canada…the economy, RE. They were discussing if Canada would have a soft landing or a crash. He then said what was agreed upon was that it didn’t matter which one, there would be a landing none the less. the rest of the interview was very interesting…a must see.
Do you mind sharing the link to that interview? I’d love to watch it.
From a Brokers perspective; Toronto Real Estate prices even after taking a larger decline since 2017 have now finally been steady, but back increasing to higher levels. Increasing number of Condos & Homes are available throughout the City of Toronto. Based on MLS Listings & Data from skyhub –
Toronto Homes for Sale shows an average Toronto home selling for 96% of asking price. Along with an increase in prices compared to the last few years. Toronto Real Estate Board Data Homes & Condos prices have increased and are on a continuous growth rate.
Housing prices are on the increase majorly, Homes in Toronto are listed and sold within a few days for almost asking price. Average TREB data shows homes in Toronto are sold within 3 weeks for 96% of the asking. https://www.skyhub.ca/on/toronto/homes-for-sale According to Skyhub canada; Toronto’s Average days on market before selling is less then 24 Days. With houses selling almost close to asking prices. Bidding War days might be over, but houses are moving fast. Additionally, Prices have been higher every year compared to last few years. I predict we will soon see 2017 all over again
You know when Realtors post links to their own sites with a bad read on average days on market, it just makes people not want to use those Realtors, right? The ask price has been discussed many, many times, and it’s a BS metric, since any Realtor that over listed significantly cancels and re-lists at a lower ask to facilitate the transaction. Most regular readers here understand that, since a laundry list of transactions doing this were posted.
In regards to “average DOMs,” another BS metric. If I cancel and relist every 30 days, the average can never be higher than 30 days. There’s a reason they didn’t use CDOM, like they do in Ottawa or most US real estate boards.