Canada

Canadian Real Estate Prices Hit An All-Time High, But Gains Are Rapidly Decelerating

Canadian Real Estate Prices Hit An All-Time High, But Gains Are Rapidly Decelerating

Canadian real estate prices have spiked to a new high. Canadian Real Estate Association (CREA) numbers show prices across the country ripped higher in March. Despite the good news for sellers, gains are tapering at an alarming rate.

The Price of A Typical Home In Canada Has Never Been Higher

The price of an aggregate benchmark (a.k.a. typical) home, made a huge single month leap in March. The benchmark reached $652,400 across Canada, a 1.14% increase from the month before. That represents a 4.6% increase compared to the same month last year. The benchmark is now printing an all-time high, beating the previous record set last July. Remember, this is an aggregate benchmark, which includes condos as well. Not just detached homes.

Source: Statistics Canada. Better Dwelling.

Canadian Real Estate Price Gains Are Rapidly Decelerating

The increase has a few caveats worth noting, one of the most interesting being price deceleration. The annual increase of 4.6% is a huge gain, but it’s the lowest increase since December 2013. People should also note how quickly this trend is tapering. The rate of growth has declined 74.78% over the past 11 months. The gain is very large, but the pace at which they’re declining should be read as a sign of caution.

Source: Statistics Canada. Better Dwelling.

But… Toronto Real Estate Prices Are Falling

We know, Toronto’s composite prices are falling, how can the rest of the country be increasing? The aggregate benchmark price is a weighted index of cities by regions, and Toronto sales are declining very quickly. Toronto sales represented 21.3% of sales in the country last year, and only 16.5% of sales this year. Smaller regions are seeing sales rise, and prices with them. This brings up the floor of prices across the country, as lower priced homes in far off regions disappear. Too wordy? Lower priced markets (like Edmonton) climbed last month, meaning the cheapest homes in the average are rising.

Source: CREA, Better Dwelling.

National prices aren’t all that useful for homebuyers looking for local pricing. Just because home prices are falling in Toronto, doesn’t mean you give a damn in Calgary. However, rising prices across the country, likely mean Toronto and Vancouver’s buyer exuberance has spread to other regions. When even Edmonton is at risk of overbuilding, but seeing prices climb – we’re seeing a national exuberance problem getting worse.

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44 Comments

  • Reply
    Trader Jim 2 months ago

    Sloppy setup with that deceleration, good call. Near impossible to reverse that drop without a drastic change like 40 year mortgages.

    Edmonton resales are up while they’re trying to dump new construction to investors? Nice.

    • Reply
      TMT 2 months ago

      Rising condo prices are driving these numbers higher, so they’re right, it’s the floor. The problem with rising condo prices are these are most likely to be the poorest residents in the country, which think it’s their first step up the property ladder, but likely the fastest way for them to stall by overpaying.

  • Reply
    TO Investor 2 months ago

    This is why Toronto’s decline is just temporary. The whole country is seeing prices rise, while Toronto declines. Not realistic, since Toronto is literally the centre of this country’s economy.

    • Reply
      MH 2 months ago

      Everything is temporary… including the obsession with real estate. Who knew that reading old newspapers could be so educational…

      https://twitter.com/ExtraGuac4Me/status/980578764621934594?s=19

    • Reply
      Alistair McLaughlin 2 months ago

      Except the rest of the country isn’t rising. It’s flat. Only Vancouver and Toronto condos are rising, pushing up the average price very slightly.

      • Reply
        Mmr 2 months ago

        prices at Ottawa raised 8 percent and Montreal too…it’s raising every where except Toronto and Vancouver. And Toronto declining fastest.

        • Reply
          Alistair McLaughlin 2 months ago

          Ottawa and Montreal are the only hot markets. Detached are not hot anywhere outside those two markets. And Ottawa’s market is being seriously exaggerated by the real estate shills an uncritical media that prints realtor propaganda almost verbatim. There are pockets of Ottawa in the West and South that are hot. Otherwise, it’s pretty tame. Extremely low inventory is the problem.

          Other than that, it’s condos in Toronto and Vancouver.

    • Reply
      Asterix1 2 months ago

      That comment makes no sense! RE is regional, GTA is the epicentre of this ongoing crash.

      Rest of Canada will follow with dropping prices, GTA will continue to fall with it.

      Party has been over for a while, still some clueless people buying overpriced boxes in the sky.

    • Reply
      Investor 2 months ago

      Was that sarcasm or just a deliberate refusal to fully comprehend the info provided?

  • Reply
    carlton 2 months ago

    Maybe T.O. investor can explain…

    How does this equal Temporary decline………Banks raised rates without BOC hiking rates (wtf), BOC 2018 rates hikes which is still on the way, B-20 stress test is in full effect, which equals less qualified buyers, banks are giving 20 percent less on average, homes sales are down 40 percent on average, inventory is rising.
    Keep investing, sounds like you got this thing figured out.

    • Reply
      Yu 2 months ago

      Banks are raising rates, but variables aren’t moving. They’re likely trying to pressure people into buying sooner to “lock in” with a little FOMO. Media sure is playing it up.

    • Reply
      Alistair McLaughlin 2 months ago

      Banks raised their fixed mortgage rates because the bond market yields are increasing, particularly the 5 year benchmark. They dropped variable rate slightly because the BoC, as expected, did not increase rates in April, and it looks like they may wait until July. They had inched up slightly in anticipation of a possible April or May increase that looks less likely now.

      In short, bond market determines fixed mortgage rates.
      BoC overnight lending rate determines variable mortgage rates.

      Once you understand that, all the big banks’ moves over the past week make perfect sense.

  • Reply
    Mmr 2 months ago

    Seems B-20 didn’t do there job. If this continue end of September…then all this for nothing….

    • Reply
      Alistair McLaughlin 2 months ago

      B20’s job was to limit risk in the federally regulated financial institutions. Declining home prices was only an anticipated side effect. It was never the goal of OSFI’s policies. OSFI cares about risky loans in the federally regulated banking sector, not home prices.

      • Reply
        Mmr 2 months ago

        Ok that make sense.

      • Reply
        xelan 2 months ago

        As a side effect B-20 shifted borrowers to smaller lenders which may not report data properly or don’t report it at all. Even government doesn’t have full visibility into those lenders and their practices.

        It’s masking some risks brewing in the system and may come as an unpleasant surprise to everyone at the end.

      • Reply
        Victor 2 months ago

        Another side affect of B-20 is that more people buying in the first 4 months of 2018 as they got approved in the end of 2017. This must be the main reason why prices grew across the country. Smart money leave Toronto real estate and some part of it is invested in Ottawa, Montreal and other places.

  • Reply
    xelan 2 months ago

    Good news for Canada, bad news for Toronto and Vancouver because this is another piece of data to justify further rate increases and new policies.
    I won’t be surprised is new regulation will come out soon targeting specifically condo sector, preconstructions financing or some unconventional financial instruments used for condo purchases.

    • Reply
      Mmr 2 months ago

      federal law don’t target a city or a specific sector it has implication in whole sector. And if you prediction is right that mean even less supply of condo since you need to sell 70 percent pre con just to get financing. Which mean in future no more condo project will go through. How does that will help price fall?

  • Reply
    xelan 2 months ago

    Who said it will be a federal law? Who said there will be a law at all? Who said that all policies lead to supply reduction? It’s all your imagination.

    Every policy maker understands that 40% YoY price growth is unsustainable even in a short term and it will be bad for everyone – homeowners, builders and even banks.
    The question is if they will try to do anything about it or not? Time will tell.

    I don’t know where 40% YoY is coming from, I don’t see it in any stats but looks like those guys can see it somewhere:
    https://www.huffingtonpost.ca/2018/04/25/new-condo-sales-toronto-housing_a_23420272/

    Does anyone have stats supporting this number?

    • Reply
      Mmr 2 months ago

      40 percent is false information maybe 8 or 9 perenct most. And it’s slowing down. In future there will be very few condo project once current one dry up cause developers won’t be able to get cheap and easy finance any more in long term that’s less risk for banks.

      • Reply
        xelan 2 months ago

        You have to provide links to exact stats because your “maybe” means nothing.

        I’m glad you understand that developers will face a challenge getting financing, and it’s obvious that the same thing will happen to regular households.
        Since builders are generally perform risk planning and household don’t who do you think will face financial difficulties first?

        You are speculating that financing will slow down builders before condo buyers and that’s highly questionable. If the opposite happens and condo buyers will go bankrupt first – this will be game over for everyone.

        • Reply
          Mmr 2 months ago

          I don’t think builders not all are good risk planner. It’s reported almost 20 percent condo project might got cancelled cause they miscalculated the cost. Having say that condo buyers who are buying 1000 per square feet should go bankrupt it’s no on fault if ppl are dumb morons. No one can save that type of decision.

          • xelan 2 months ago

            Ok, follow my line of thought:
            “dumb morron buyer” (using your words here) bought preconstruction condo. 2 years later when the condo is built he/she suddenly discovers that mortgage rate is 1.5-2% higher than it was when he/she signed the papers. He/she suddenly discovers that he/she can’t finance it anymore and backs away from the deal at a cost of lost deposit.
            Imagine you have a lot of those “dumb morrow buyers” in the same building. They all can’t finance their purchase anymore.

            It turns out to be not just buyer’s problem but builder’s problem as well because builder has to pay off construction loan and a lot of buyers refuse to close deals.
            “dumb morron buyer”‘s problem becomes a “builder bankrupt” problem.

            “Builder bankrupt” problem becomes “Bank construction loan repayment” problem and also “builder employees loose jobs” problem.

            It all may escalate very quickly.

    • Reply
      xelan 2 months ago

      For those who is interested, author provided false info. The source data he used indicated 40% YoY growth in benchmark price, not average price which is a big difference.

      Anyway, there is no doubt condo market is booming in GTA now.
      24% growth based on price per sq.ft. sounds more realistic.

      • Reply
        Mmr 2 months ago

        Can some one back out once they sign pre con condo? I thought builders can sue them? Not sure how this works. I don’t think ppl can just walk away with there deposit lost.

        • Reply
          xelan 2 months ago

          I’m pretty sure you can back away with just loosing deposit. At least that’s what was told to me at the preconstruction office few years ago.
          At the end it doesn’t really matter. If you can’t finance your mortgage it’s game over, you have to back out. If you can’t back out nicely you will declare bankruptcy.

          Suing is not a good option for builder anyway even if it would be possible because legal actions take long time and builder is on the hook for interest on construction loan all that time. Even if builder wins the case condo buyer can still declare bankruptcy.

          The whole system is working well only when prices go only UP.

          • xelan 2 months ago

            Actually exactly that scenario is now happening with a small segment of GTA detached market in Oakville.

            Many of you know that story pretty well but just in case you missed it:
            https://www.communityforfairness.ca/
            They bought preconstructions, now they can’t get financing. If something like this will happen to condo markets it will be a disaster for sure.

            You can ask them if they can back out of deal at the expense of the deposit which is often all their life savings.

      • Reply
        gear74 2 months ago

        Actually almost all pre construction condo projects comes with assignments options. So even in the worst situation and you not going to be interested to close you can sell your assignment with nice profit, considering you purchased that condo 2 or 3 years ago.

        • Reply
          xelan 2 months ago

          Really? I’ve read that assignments are pretty rare and you have to specifically request it and get approval. Builders don’t like it because it’s an extra paperwork and mess for them.
          Anyway, in a market of rising interest rates or declining property values it would be extremely hard to find someone who is ready to take over everyone’s mess.
          Both of those scenarios will affect everyone.

          Just an example, West Vancouver is now experiencing a huge slowdown and it’s very common to see there houses which are 100+days on the market.
          Probably they also thought at some point that if something goes wrong they will be able to sell their house quickly. In case of preconstruction you won’t have those extra 100+ days to sell.

  • Reply
    gear74 2 months ago

    Don’t know about Vancouver market and not sure about assignment on the house but in my case I purchased 2 pre construction condos in Downtown Toronto with assignments included. Already made gains of 250000 dollars each just from the price appreciation.

    • Reply
      Xelan 2 months ago

      Good for you. When have you bought those? When are you planning to sell?

      • Reply
        gear74 2 months ago

        Purchased in 2015. But that’s not the point. There are a lot of bears on this website and what they fail to see that condos as the cheapest entry point will be in good demand in good and promising areas like Downtown Toronto. Now if you take in consideration how many immigrants want to come and live in Toronto I don’t see how condo prices in downtown Toronto will go Down. For sure there will be slower growth, not 25 percent but there will be growth. One more point majority of today’s immigrants are skilled immigrants. They all have a property back home whether it Europe, Russia, Israel or Latin America. They can easily sell their property back home and buy condo in Toronto plus some money will be left as we all know what are the prices in their previous countries. I am not even talking about how cheap Canadian dollar this days. So good luck betting against Downtown Toronto condos.

        • Reply
          RM 2 months ago

          Nope. Sorry but the immigration narrative just doesn’t hold up. Foreign speculation maybe but that’s not the same thing. I own a condo in TO so I’m not trying to push something out there for my own benefit but the data just doesn’t support it. You can look all this up on government websites but here’s a good summary…

          http://extraguacplease.blogspot.ca/2017/05/confronting-false-narrative.html

          • gear74 2 months ago

            I am not saying it’s immigration only. It’s a combination of young professionals, baby boomers downsizing and want to be closer to transportation and hospitals and immigrants together.

        • Reply
          xelan 2 months ago

          Immigration is definitely a factor but it’s definitely not a major one. You are severely underestimate the effect of interest rates.
          I just quickly punched numbers in one of the online mortgage affordability calculators and with a very little 2% increase in interest rate you will be able to afford 20% less mortgage.

          Your mortgage payment will be the same, but because of higher interest you can borrow 20% less.
          Imagine if everyone in Canada can borrow 20% less than now who will be pushing prices higher? Immigrants? Foreign buyers?

          Interest rate is a key factor and right now it’s on it way UP. We’ve seen times when it was 15%, not just 1.25% like it is now.

  • Reply
    gear74 2 months ago

    Oh and I forgot one more group. People like me and you can call them local investors that see ahead of time where downtown Toronto condos prices headed and want to secure for their kids at least condo properties in the city. Meanwhile my tenants will pay off my mortgage.

    • Reply
      RM 2 months ago

      That’s fine except it’s hyperbole and speculation. I’m not saying you’re wrong, because currently you are very correct about the demand, but your theory is based on a narrative that numbers just don’t support. The issue that myself and most other regulars here is that intrinsic demand – which is only based on fundamentals like population, wages, job availability, interest rates, etc. – doesn’t support this. Everything else is theory and speculation. If you’re comfortable with that gamble, so be it, but don’t state things as facts just because you think they are. Show some numbers and we’ll all be on board.

  • Reply
    gear74 2 months ago

    Well show me your numbers. What I am saying coming not only from my mouth, many analyst and people in real estate industry saying the same. At the end of the day it’s supply and demand issue.

  • Reply
    vap 2 months ago

    Toronto or hogtown is going down…Van possibly next.
    The forced GST may finally affect prices. Canadians are in denial still.

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