One of Canada’s biggest banks isn’t sold on a quick recovery for real estate prices. The Teranet-National Bank of Canada HPI (TNB HPI) just reported home prices made the largest annual drop on record in March. The economist that prepared the report warns home sales are still too weak to call for a recovery in the market. They also don’t see sales picking up much for the rest of the year, adding further doubt of a quick turnaround.
Canadian Real Estate Prices Fell In Most Major Markets
Canadian real estate prices increased in the raw data, but the bank chalks it up to seasonality. The national HPI, composed of the 11 largest markets, increased 0.5% in March, marking the first increase in the past 10 months. Adjusting for seasonality, prices fell 0.8% over the same period, said Daren King, the economist at National Bank that prepared the report.
The TNB HPI generated a very different result from what you may have seen from CREA. The difference is due to how and when the two organizations measure their data. CREA uses MLS list closing data, so it’s much faster to get a response. The trade off is it’s missing all non-MLS sales and includes sales that don’t necessarily close.
The TNB HPI uses land registry data, which makes sense, since it’s co-created by Teranet. This results in a much more comprehensive data set, which you may have noticed tends to be less volatile. It takes about 60-90 days normally for a property to go from closed to registering the transfer, meaning this data is a little older. The trade off is that no deals that “fell through” are included, leading to higher precision.
Both are great and generally tell a similar story, but there are times when it conflicts. This is one of those times, where the market is more volatile than usual and financing hurdles are bigger than before.
Canadian Real Estate Prices Made The Fastest Drop On Record
Canadian home prices made the fastest decline in the history of the index. Compared to the same month last year, prices are 6.9% down in March. It’s just a little bigger than the drop observed during the 2008-2009 Financial Crisis. The data only goes back to 1999, so the bank’s statement may sound a little worse than it is. We have yet to see a 90s-style pullback when it comes to home prices.
Canadian Real Estate Sales To Remain Slow, No Short-Term Bounce
A rising CREA benchmark price has dominated headlines, but weak sales question its validity. Low inventory markets tend to result in more abrupt price movements, not necessarily in line with the general market’s acceptance of that price. Consequently, National Bank isn’t sold on the bear market being over.
“Despite signs of stabilization, the level of sales in Canada remains very low on a historical basis and has declined by 39.5% since the start of the monetary tightening,” said King.
Cheaper fixed term rates have appeared, but financial markets don’t see easy money soon.
“As we expect the Bank of Canada to keep its policy rate at its current restrictive level for most of 2023, the outlook for a recovery in the housing market remains limited. As a result, sales are expected to remain below their historical average in the coming months and it is still too early to interpret recent increases in sales as a rebound in the housing market.”