Canadian Real Estate Prices Turn Negative According To The US Federal Reserve

Canadian real estate prices aren’t doing so hot, according a branch of the US Fed. Federal Reserve Bank of Dallas (Dallas Fed) numbers show real estate prices across Canada have turned negative in Q2 2018. The negative numbers are the first for Canadian real estate prices, since the Great Recession.

Real House Prices… As Opposed To Fake Ones?

A quick primer for those that need one. Fancy pants economists use “real” prices to make trend comparisons over time. The term real just means the numbers have been adjusted to the same year’s dollar value. You might be more familiar with the term “inflation adjusted,” but that would just be too easy. Real numbers allow trend observation, without worrying about the diminishing power of money over time. That becomes particularly important when comparing historic trends, when inflation was much higher.

Canadian Real Estate Prices See First Decline Since 2009

Canadian real estate prices are showing mixed movements. Prices in the second quarter of 2018 are up 1.37% from the previous quarter. The quarterly gain wasn’t enough to keep prices afloat, which are down 3.45% from last year. The decline represents the first annual negative growth since 2009. Remember, this isn’t just your major cities – it’s prices across the country.

Canadian Real Estate Prices (Real)

The price of Canadian real estate, expressed as an inflation adjusted index.

Source: Dallas Fed, Better Dwelling.

A little Great Recession context might be needed, because it wasn’t nearly as bad in Canada as it was in the US. Canadian prices only saw negative annual growth for 4 quarters during the recession. The declines worked out to a drop of  ~1.6% from the peak that preceded the last downturn. The small decline gives a mixed read on whether or not it should stir relief or worry.

Canadian Real Estate Prices (Real) – Annual Percent Change

The annual percent change in Canadian real estate prices, adjusted for inflation.

Source: Dallas Fed, Better Dwelling.

The minor price drop during the Great Recession had to do with where prices were in Canada. By 2009, markets like Toronto still had real prices below the peak obtained in 1990. Since prices were below the peak, they weren’t in “bubble” territory. In a more technical sense, they were still experiencing the previous correction. Many of the people in that market had seen higher prices not too long before that. Today, we don’t quite have that luxury, since we’re charting new territories. Sometimes when charting new territories, you may venture a little too far north and need to correct course.

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  • Marc 6 years ago

    Will the last Canadian real estate investors turn off the lights? Thanks!

    • REM 6 years ago

      It’s just the largest central bank in the world, what do they know? Let’s trust the schmucks on BNN selling mortgages for their opinion, and go with that.

  • Richard S 6 years ago

    Fear mongering from the US. I doubt they would even have access to proper information. The Canadian Real Estate Board said 2% growth.

  • Casey 6 years ago

    It’s just a healthy pull back in the bull market. It’s a buy in the dip opportunity.

    • Kevin 6 years ago

      I agree. Real estate is always a good investment over the long run, especially in cities like Toronto where there’s plenty of continued demand for over 30 years.

      • Grizzly Gus 6 years ago

        You guys have to stop thinking about our RE market as supply and demand. Its really supply and supply.

        Supply of homes vs supply of credit chasing those homes. The former is adequate to support our population and is trending towards oversupply. The later has been massively oversupplied since the financial crisis. Credit taps of turning off. Soon it will be oversupply of homes and a huge shortage of credit chasing those homes. No supply of credit = no demand.

        Ill say this again, normally something is worth what someone is willing to pay. Real estate is worth what someone is willing and ABLE to borrow. Bet the credit cycle my friends.

      • Trevor Stafford 6 years ago

        If you bought in Manhattan in 1929 you’d need to wait 30 years just to get back to even.

        So while technically true, in the long run we’re also all dead.

      • carlton 6 years ago

        Buy! don’t let those losers at Federal Reserve tell you bullsh*t you know better, go for it, with sound thinking like that what could go wrong?

        You know what they say about Canadian real estate what goes up never comes down, just ask the people in Vancouver now.

    • Grizzly Gus 6 years ago

      Just a gully?

  • Yuzheng 6 years ago

    Inflation coming in light already, without even getting another hike.

    The rug is getting pulled from underneath investors, and people that have no diversification (all of their money in their house) should understand this is going to be a problem.

    • David Kemp 6 years ago

      That means no rate hike, and possibly a cut in the future. This is a net positive for real estate buyers.

      • Trader Jim 6 years ago

        Not exactly. The funds rate might have to go up regardless, it would demolish the loonie against foreign currencies.

      • Rachel 6 years ago

        Yes, but you’re looking at it from a narrow perspective. An economy that can’t support rates is not one that produces people that can afford to buy million dollar homes.

        In 2015, Canada was doing mostly fine but the BOC cut rates to support the oil industry. The rest of Canada that was doing fine, got credit on steroids, inflating the value of assets every except for Alberta, where asset prices stagnated.

        This was incredibly dumb. It would be the equivalent of the US cutting rates because Ohio was in trouble, while the rest of the country was doing fine. That my friends, is how we do things in the Banana Republic of Canada. We serve well connected special interest groups, not a national policy.

        • Fraser 6 years ago

          Good post Rachel…this has been going on for decades now…we are in deep, deep trouble as a nation…most of this began under Trudeau Sr and all who have followed have just been pandering to special interest groups, accumulating debt…social engineering…all dreadful, expensive policies (bilingualism, equalization, multiculturalism…) destroying the country…but its all OK, pot is now legal…lolllllll…what a mess, just like daddy, this clown in office will continue the downhill slide to the bottom…a big pop coming to Canada, thanks Quebec and all the greedy people who came to Ottawa to rob us blind…get out of debt people, asap…

          • Bluetheimpala 6 years ago

            This is partisan xenophobic garbage. I’m not a baby T fan, he pooched my vote, and have voted Con when their policies would benefit canada but…and I can’t remember the saying exactly but it’s in the bible…those with unclean hands should fuck off. The is a RE blog, whether you’re right or left when the lights turn off we’ll all be in the same darkness. Tick tock. BD4L.

      • Rain City Ryan 6 years ago

        BoC is a tiny fish in a huge ocean. Globally credit is tightening and bond yields are rising. This means those cheap mortgages are going to get more expensive.

        BoC moving in a delayed lockstep with the rest of the world just means that our currency doesn’t tumble.

      • Bluetheimpala 6 years ago

        “Inflation coming in light already” = No rate hike
        David, you can’t be serious. Please, use the internet for more than just porn and cat memes; it is an important resource which houses vast amounts of information that people like you and I can use to understand things. Like porn and cat memes. Tick tock. BD4L.

  • vnm 6 years ago

    When unemployment rates in the U.S fall below 4% as they have ( it was around 3.4% in 1929 at the time of the crash), each and every time without exception it marked the end of the credit cycle and a recession soon followed.
    There is no new world order, we haven’t developed cold or any other kind of limitless fusion power, we’ve just figured out how to boil the oceans.
    What’s special about this credit cycle is how unprepared we are for a correction — the BofC unsuccessfully tried to do an end run around the last one, resulting in asset bubbles, and record debt levels.
    As the old joke goes:
    A man jumps from the roof of a 10-story building and is falling to the ground. A woman on the 2nd floor sees him hurtling by outside her window and shouts, “Hey, how’s it going?”. The man replies “So far, so good.”

  • Rick Abrams 6 years ago

    Be thankful when markets make downward adjustment when any market has been following foolish economic policies. Adjustments are much better than crashes

  • Brian Ripley 6 years ago

    My chart of the 6 biggest Canadian Cities SF Detached prices show national MLS sales quickly getting exhausted but strata prices in Toronto are still trending up (Sept data)

  • Willy 6 years ago

    I started to have a feeling that in the next 2-3 years and until interest rates level off following 5-6 hikes house prices in Vancouver and Toronto will decline by 10-15 %. So those who will be ready to buy say from 2022 and beyond will be lucky.

    • Bluetheimpala 6 years ago

      I started to have a feeling that in the next 2-3 quarters while interest rates continue to rise following 3 hikes by end of H1 2019, prices in Vancouver and Toronto proper (Core TO + EY) will decline by approx 20% with the law of contraction resulting in declines between 20-45% in outer regions as money returns to the areas of highest economic activity. So those who will be ready to buy say from late 2019 to 2030 will be paying less than those who purchased from 2015-April 2017. Tick tock. BD4L.

      • Willy 6 years ago

        I think whoever purchased in 2015 will still be ok but regarding 2016- 2017 I agree with you.

        • neo 6 years ago

          I disagree. The parabolic move at the end of this bubble occurred in 2016/2017. Going back to 2015 isn’t enough. There is always an overshoot which should take us to 2014 at least.

        • Beh G. 6 years ago

          Average detached prices in the 416 & 905 are already hovering around early 2016 prices. This correction will have to go much further than that.

          I suspect we will see prices down to 2010-11 levels before any real recovery starts and that´s at the earliest going to be in the 2023-24 period if the last crash is any indication and after a serious loss of investor confidence.

          Canadian RE is in a lose-lose situation right now… if the economy keeps trucking along like it has been, the rates will keep going up putting even more pressure on house prices and make the decline curve even more steep. And if the economy is going to switch to lower gear, we´re practically looking into the abyss with job losses and distressed sales galore.

          For everyone´s sake, I hope it’s the former and only those people who are over-leveraged, as a result of their own greed, will experience the pain instead of the economy taking a nose dive and affecting everyone.

        • @xelan_gta 6 years ago

          If loosing $250k of unrealized equity gains is “OK” for you then yes, you probably will be fine.

  • Willy 6 years ago

    So due to that feeling I’ve got lately my plan has changed. I was planning to buy houses but I heard they’re gonna make it hard to tap the equity to buy more so this plan has changed too. Now my updated plan is to buy a few smaller apartment buildings probably in Calgary and Montreal if I could get a good price because the multifamily sector in Montreal is overvalued compared to rents so I’ll see if it works. So say if I buy one apartment building in Calgary and another one in Montreal by the end of this year I’ll be preparing myself for the buying opportunities that will start to pop up in Toronto after 2022 and by then I will have built up equity in the buildings I’m going to buy soon and that equity will be used to get into the Toronto market in a few years. So eventually I should have a diversified portfolio in the main cities.

    • Grizzly Gus 6 years ago

      I would also recommend have some diversity outside of Canadian RE.

      • Willy 6 years ago

        It’ll be in the stock market. I already made some money on the marijuana stocks specifically that Tilray stock that exceeded my expectations. I bought a few of those stocks last year around June when I noticed they were down and added the Tilray as soon as it was introduced. I sold them all a few days ago because many experts say they are way overvalued so I got scared and pressed the sell button. But big money was made already so I don’t care if those stocks keep going up instead of crashing. Tilray made me money as much as all the other stocks combined and I admit I just got lucky but it is what it is.

    • Bluetheimpala 6 years ago

      Sure Willy. Keep on, keepin’ on. Grab me a couple apartments while you’re at it. Tick tock. BD4L.

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