Toronto real estate finally stops hemorrhaging… kind of. The Teranet – National Bank of Canada (NBC) home price index update shows Toronto prices have stopped declining. Great, the Home Price Index (HPI) declines are over! Not exactly. Toronto’s HPI saw an increase due solely to soaring condo prices, while other segments continued to drop.
Composite Real Estate Prices Across Canada Increase 0.27%
The Composite 11, a weighted aggregate of Canada’s 11 largest real estate markets, posted a gain. The index increased 0.27% in January, bringing the 12 month total 8.73% higher than the same month last year. Despite the increase, the composite is still down 1.74% from August, when it reached an all-time high.
Toronto Real Estate Prices Increase 0.21%
Toronto real estate, the largest component of the index, stopped dragging the index lower. Prices in Toronto rose 0.21% in January, the first increase following five months of declines. This brings the 12 month gain to 8.37%, which is very large growth – just not compared to what we were seeing last year. Prices are still 7.30% below the July 2017 peak.
Source: Teranet-National Bank of Canada. Better Dwelling.
It can’t be stated enough times, that periods of excessive price growth should be followed by periods of low price growth. This is how markets become “balanced.” That said, 7.3% is still unrealistically high to maintain – and slower price grown in the future shouldn’t be surprising. The median annual pace of growth for Toronto’s Teranet HPI is 6.05%.
Here’s What You Should Know About This Month’s Numbers
Despite the positive news, this is one of those readings that requires unpacking. There’s two important details to take away from Toronto’s numbers. The first is why it’s rising, and the second is the change in annual growth.
The Teranet-NBC team led with headline Toronto “stopped trending down,” but there was more to that. National Bank’s Marc Pinsonneault noted the increase in Toronto was “due entirely to condo dwellings.” If condos moved enough to drag the whole index higher, the “excessive exuberance” the CMHC has noted last week, may be concentrated to condos. Corrections are necessary after extended periods of growth. Without one in the condo market, prices will become increasingly precarious, in my opinion.
Source: Teranet-National Bank of Canada, Better Dwelling Calculations.
Despite the fact that Toronto “stopped trending down” on the monthly index, it’s still very much declining in annual terms. Toronto’s 8.37% is performing below the national average of 8.73%. The annual rate of growth has also continued to slide lower, and is now at the lowest number since July 2015. Unless we’re going all Zimbabwe with a period of hyperinflation soon, this number will likely fall below the median rate of growth for a while. Note: No one expects Canada’s central banks to start acting like Zimbabwe’s.
Slowing growth is expected after such a large increase, and it wouldn’t be surprising to see this dip into negative territory. A negative movement would be a healthy balance, from the massive increases we have seen over the past few months.
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