Canadian real estate prices have once again turned into a runaway freight train. The Canadian Real Estate Association (CREA) October Home Price Index (HPI) made a big jump. Home prices across the country are now rising at the fastest annual rate since June. This has almost entirely reversed the pre-election slowing of growth.
Canadian Home Prices Are Growing At The Fastest Rate Since June
The price of a typical home across Canada has soared across the country. The urban composite saw the benchmark price reach $762,500 in October, up 2.34% ($17,400) from a month before. Compared to the same month last year, prices are now 23.4% ($144,800) higher. By any measure, this is huge growth.
Canadian Real Estate Benchmark Change
The 12 month price in change of a typical home across Canada.
Source: CREA; Better Dwelling.
Prior to the election, annual home price growth had slowed. It’s since reversed, making a sharp acceleration last month. It’s now reached the highest rate since last June, which was the all-time record high. It still has a ways to go to pass that high but it’s coming in hot with this kind of monthly growth.
Canadian Home Prices Jumped Up To $78,000 In A Month
Southern Ontario led the market for monthly home price gains, rising by tens of thousands. The biggest gain was in Oakville-Milton, where the benchmark hit $1,438,800 in October, up 5.4% ($73,100) in just one month. Greater Toronto was in second with the composite at $1,128,600, up 4.3% ($46,200) over the same period. Cambridge came in third with its benchmark rising to $823,800, up 4.1% ($32,100) in October. Home prices increased by nearly a year’s worth of pay in a month, but the Bank of Canada (BoC) still thinks stimulus is needed. Makes sense.
Canadian Real Estate Prices: 1-Month Change
The monthly change in the benchmark price for a composite home in Canada’s largest real estate markets. In Canadian dollars.
Source: CREA; Better Dwelling.
Real Estate In Ontario’s Cottage Country Is Falling
Southern Ontario is also where the biggest losses in the country occurred. The benchmark price in Bancroft fell to $470,800 in October, down 2.97% ($14,400) from a month before. Simcoe, about an hour north of Toronto, saw its benchmark fall to $568,500, down 2.47% ($14,400) last month. Out west, Regina saw the third biggest drop, with the benchmark falling to $262,800, down 1.83% ($4,900) over the same period.
Vancouver and Montreal Real Estate Underperformed
Other notable markets in the CREA HPI showed substantial monthly gains. Greater Vancouver’s composite benchmark price reached $1,199,400 in October, up 1.12% ($13,300) from a month before. Montreal also showed strong gains reaching $506,800, up 1.42% ($7,100) over the same period. Calgary was a little weaker but still advanced with a benchmark of $445,600, up 0.43% ($1,900) in a month. All of these markets showed strong gains but underperformed the aggregate.
You’ve probably heard this a million times by now but haven’t heard it with context. The return to surging home prices is due to strong demand against relatively low supply. Inventory is close to historic levels for this time of year, but demand is much higher than normal. November is traditionally a slow month, but a few factors have buyers FOMO-ing into the market.
Interest rates are one of the biggest reasons and not just because they’re low. Interest rates are used to stimulate demand for large goods like housing. This is enough of a policy decision to stimulate more demand than would naturally occur. That’s not all that’s working to drive demand though.
Mortgage brokers have been saying people are looking to buy ahead of rising rates. This is an odd dynamic since rising rates typically mean slower home price growth. The issue there is households just saw home prices rise during a recession. This likely creates a substantial moral hazard, where buyers see very little downside. In this case, the risk of being able to borrow less is the only risk many see.
The anecdotal evidence from mortgage brokers might be leaving a mark in the data as well. Mortgage borrowers have been increasingly seeing variable-rate mortgages, betting against higher rates. The insured mortgage segment, used by first-time buyers, isn’t seeing nearly as large of an increase. These borrowers are still opting to lock in their rate, which you would do when you expect rates to rise.
I can’t find a single person that thinks home prices are going to fall right now. People legitimately think prices will rise 30% per year and have zero confidence in the government ever being able to maintain any sort of stable currency.
Markets only dip when everyone is crowded in the same trade. That could be a more bearish sign than many assume.
We are having a solid post COVID recovery and house prices go up (also in real terms). If the economy slows QE will come back and prices will go up further. Pretty strong case to invest.
Seems healthy. Tiff’s really got this under control.
– looking locally (within Canada’s borders), arguments can be made for / against buying a home right now.
– looking globally, which is the way the wirkd is heading, Canada has / is quickly becoming a rooming country -> people will live here but work / gain income from elsewhere.
– rooming cities (countries, in this case) generally don’t have any other function than to allow people to house people.
– if Canada has crossed into a rooming country already, its house prices will not decline but continue to increase.
– if the point above is true, Canada will have / has no choice but to continue to prop up the home prices.
– one last gut shot that every Canadian needs to know and hold our government accountable for; we have 0 gold reserves. If our government doesn’t realize the grave mistake of not accumulating gold instead of selling it all over the years, then why expect anything of them?
– Four other countries with exactly the same amount of gold reserves as Canada: Armenia, Azerbaijan, Cameroon, & Nicaragua. Not a pretty picture.
Good luck fellow Canadians.
Jimmy
This has gotten out of hand… To pass the stress test and qualify for a mortgage at the average GTA home price of $1,128,600, less a 20% downpayment ($902,880), you need a household income of $215,000/year putting you in the 98th percentile for Ontario household incomes.
We know that roughly 1/4 of purchasers these last few months have been investment firms and individual landlords purchasing multiple units, but who is the 3/4 of the buyers? The math says it shouldn’t be locals… and if it is, they’re by-passing the mortgage rules entirely – perhaps with the help of shady brokers. If it’s not them, it’s launderers with dirty money… possibly both.
This will not end well. Even if it takes another 30 years, it will not end well.
I only found this out from this comment section, but apparently, you can just straight up lie about your income? Or pay the mortgage broker to do it for you. The lenders want to give you a mortgage, so they’re not gonna press too hard.
Income and credit fraud is quite rampant within Canadian real estate markets. How do you think households making 100k a year are buying 1.2 million dollar homes?
House in Canada is for investors, don’t step in their territory they have government and law support.
Who wants to bet a lot of this spurred demand is a result of real estate investors trying to get ahead of rising rates.
Ironically enough this sort of behaviour was the straw that broke the camels back way back in ‘89.
I personally feel the fact that Tiff signalling for accelerated rate increases plus ending QE much quicker than our US neighbours is an extremely bearish sign for real estate, and I absolutely wouldn’t want to be leveraging into it right now.
So these people basically take peoples taxes to insure loans for people all while making it very unaffordale for the very taxpayers that fund the CMHC……uh! Makes sense, doesn’t it!
As long as Canadians vote the way they do, what incentive does the government have to do anything else? There have been zero political consequences for the soaring cost of living. So working class wage earners will continue to subsidize rich real estate speculators until those working class folks educate themselves on what is going on and figure out they have numbers on their side – and that may never happen.
The Canadian Economic Miracle