Nearly 3 In 4 Canadian Real Estate Markets Have Seen Price Growth Slow

Canadian real estate markets are losing some steam after its record year. Canadian Real Estate Association (CREA) data shows just over half of markets saw price growth slow in June. Looking more closely at recent numbers reveals this trend is about to become more common. All but a few markets are currently on track for price growth to slow down over the next few weeks.

Annualized 3-Month Growth and Forecasting

Today we’ll be looking at the annualized 3-month price growth for various markets. Analysts, especially in credit or at the BoC, use this measure to compare performance. What we’re doing is measuring the change over a 3-month period, and projecting it as though it were the whole year. This allows for a straightforward comparison of the 12-month, or annual, rate of growth.

Trends don’t just abruptly change direction, even though that’s how they may be reported. Every movement starts with a small shift, and the 3-month rate shows it first. If the 3-month trend falls below the 12-month trend, it provides a drag on annual growth. The longer the short-term trend is below the long-term trend, the more it drags it lower. Which makes sense, because higher-performing older months get dropped in the comparison.

It works the same in the opposite direction as well. If the 3-month trend rises above the 12-month trend, it drags the annual rate higher. Annual growth can’t grow if the 3-month rate hasn’t been above the 12-month trend in a while. That would be like getting Cs on all your homework, tests, and exams — then expecting an A grade. It happens, but the data needs to be manipulated manually at the institution level. Outside of that, it doesn’t make sense.

Over Half of Canadian Real Estate Markets Are Showing Annual Price Deceleration

First, let’s look at which markets have seen annual price deceleration already. Annual growth in 27 markets decelerated in June, representing 56.3% of the CREA HPI. Sharp changes were seen in Woodstock (-9.3 points), North Bay (-4.8 points), and London-St. Thomas (-4.7 points). These markets have grown at such an absurd rate recently, local agents likely haven’t noticed.

Canadian Real Estate Price Growth

The 3-month (annualized) and 12-month rate of price growth for the composite benchmark home in various Canadian real estate markets.

Source: CREA; Better Dwelling.

Much more markets are preparing for a slowdown though. The 3-month growth (annualized) dipped below the 12-month trend in 35 markets in June. That’s about 3 in 4 markets (72.9%) where price growth has been slowing recently. This will drag annual growth lower if there isn’t a sudden boom to push prices higher.

… but let’s be honest, we’d all love to see what a credit boom looks like when mortgage debt is at this level. It’s already growing at the fastest rate since just before the Great Recession.

Canadian Real Estate Prices Showed Acceleration In A Handful of Markets

Not all Canadian real estate markets are slower. Let’s start with the annual rate of growth. Annual growth in 21 markets accelerated in June. This means the annual rate reported in June was higher than the previous month. Notable increases were in Bancroft (+6.5 points), Vancouver Island (+4.1 points), and Greater Moncton (+3.3 points). Though some of this is momentum since a lot fewer markets saw their 3-month trend accelerate.

The 3-month trend shows very few markets have seen an acceleration recently. Only six markets show 3-month annualized growth in June as higher than a month before. The other 42 markets (87%) show June was slower than the month before. Only 13 markets have a 3-month trend above their respective annual growth. If there’s steam left in this market, it hasn’t appeared yet.

Canadian Real Estate Price Growth Momentum

The percentage point difference between the 3-month (annualized) and 12-month rate of growth. A positive number means recent growth has been high relative to the past year. A negative number means recent growth has been low, relative to the past year.

Source: CREA; Better Dwelling.

Canadian real estate prices are slowing in growth, and it’s become obvious in some markets. Home sales peaked in January, and have generally been falling faster than inventory. Price growth slowing as a market fundamental changes, is definitely healthy to see.

Now the big question is how much will the market slow? If it doesn’t slow enough, shacks in the woods can become more expensive than a penthouse in Toronto. Not very likely, but I’ve seen stranger things over the past few years… like shacks in the woods trading for almost as much as a penthouse in Toronto.

It would be difficult to see the market not giving back some of the gains made over the past year. Home prices in many markets climbed due to user premiums during the pandemic. If someone pays a premium due to ideal use during a pandemic, does that stick post-pandemic? No one knows at this point, but I’m sure we’ll find out soon. It all starts with a change in the direction of a trend.

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  • Trader Jim 3 years ago

    It’s interesting to see the type of people now saying prices will rise forever. It used to be agents, but now it’s usually middle aged people whose homes are clearly making more than them.

    Agents are now in the flat-to-small pullback camp. Times are changing fast.

  • Can Kicking Canadian 3 years ago

    “he economic cost of COVID-19 has been postponed by effective government intervention; it has not been avoided”

    • Jason Chau 3 years ago

      Debt is only a solution when it leads to more productivity. When it drives up local costs, inflation eats up the benefit to the country (and then some more!).

  • Henry Griffith 3 years ago

    Big shift in Nova Scotia I notice. A lot of people I know decided to sell, and move further out from the city. You don’t see too many opportunities like this that you can pass on. Couldn’t find a home in the Valley for less than $500k in the Spring, now plenty for $200k.

    Greed will cause a lot of people to miss out.

    • Mark Skurtch 3 years ago

      Odd because your comment completely contradicts the full data at viewpoint…

  • Yung Marxist 3 years ago

    What happens when the QE, money printer and generous CERB end in the coming months?

  • Erik 3 years ago

    You all should be buying real estate as fast as possible. Prices are set to 2x by 2025. The Bank of Canada absolutely will not allow prices to fall, not even a bit. Real estate is the engine of the Canadian economy and now that we are this far down that path, there is no turning back. The government knows it, and that’s why they intentionally inflated housing during the pandemic. This was by government design, the idea being that Canadian’s wealth will increase even if they lose their job. Nobody will have to sell, and people will be able to borrow against their house and add to the economy. It was wildly successful and there is no way the government is changing their plan now.

    • Honli 3 years ago

      You are right, people need to realize Canada is one big real estate market at this point.

    • DDD 3 years ago

      Canada is a sinking ship, don’t ask people to jump in for a ride!
      Good strategy now is to wait and see, RE or stock market, just be patient.
      Lumber prices are crashing, airplane tickets in the us are half price from month earlier, a lot of houses on the market ( in hot regions) are staying for a longer time and inventory is climbing up.

    • ex 3 years ago

      Delusional Erik earn some real money

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