Teranet: Canadian Real Estate Prices Made An Unusual Drop In October

Canadian real estate prices just printed an unusual month. The Teranet – National Bank of Canada House Price Index (Teranet HPI) show all but one market experienced a decline in October. The monthly decline has only occurred a handful of times in the index history.

Teranet HPI

Regular readers can probably skip this part. The Teranet HPI is a house price index run as a partnership between a Big Six bank and Teranet. Teranet, for those unaware, is a private land registry behemoth. The index is very similar to the CREA HPI, in that its a weighted index of home prices. The concept is the same, but they sometimes have different results due to how they’re measured.

The Teranet HPI and CREA HPI measure different data sets, at different times. The Teranet HPI measures at the land registry, meaning sales are donezo. CREA HPI measures at the MLS, which uses the point of sale but before transfer. In a normal market, there’s probably not much of a difference. The vast majority of real estate sales in major cities occur on the MLS. However, in a volatile market, sales fall through and more are “private.” The CREA HPI would fail to capture that subtlety, but the Teranet HPI would.

Neither is better or worse, but they are different. Homebuyers not running numbers and depending on their agent probably won’t care. If you’re looking at the numbers professionally or from a macro market perspective, you want to take a peak at both.

Canadian Real Estate Prices Make An Unusual October Decline

The C11, a composite index of Canada’s 11 largest markets, is up but should have an asterisk beside the numbers. The index fell 0.38% in  October, but prices are up 2.81% compared to last year. Prices are now just off the peak hit in September 2018. The acceleration of price gains seems interesting, but don’t read too much into it yet.

Teranet-National Bank HPI C11 (Annual Change)

Composite aggregate of home prices in Canada’s 11 largest cities.

Source: National Bank of Canada, Teranet, Better Dwelling.

National Bank senior economist Marc Pinsonneault unpacked why it’s happening. The monthly decline is “not the norm,” he explains in the report. A monthly decline in October has only occurred 4 times in 20 years. It was also the first decline in 8 months. More important, the annual increase accelerated due to the abrupt fall made last year. Basically, the annual acceleration is suspect, and needs confirmation against a more stable period. The trend is also apparent in Toronto, the largest component of the index.

Toronto Real Estate Prices Rise Over 1%

Toronto real estate prices fell monthly, but still printed an annual decline. Toronto’s index fell in 0.18% in October, but remained up 1.88% from last year. Prices are down 4.02% from the the peak hit in July 2017. Remember not to read too much into the acceleration until it’s compared with a more stable time frame.

Toronto Real Estate Prices (Teranet-National Bank HPI)

Annual percent change of real estate prices in Toronto.

Source: National Bank of Canada, Teranet, Better Dwelling.

Vancouver Real Estate Prices Are Up Over 4%

Vancouver real estate prices made the largest monthly decline of the major markets. Prices fell 0.83% in October, but are still up 4.63% from last year. Prices are down 1.17% from the peak established in July 2018. Like the rest of Canada, an October monthly decline is unusual for Vancouver real estate.

Vancouver Real Estate Prices (Teranet-National Bank HPI)

Annual percent change of real estate prices in Vancouver.

Source: National Bank of Canada, Teranet, Better Dwelling.

Montreal Real Estate Prices Are Up Over 5%

Montreal real estate prices were the only ones to rise on a monthly basis. Montreal’s index increased 0.22% in October, bringing annual gains to 5.02%. The market is now at an all-time high, with the highest increases in Canada. Remember that Montreal prices trailed the general market over the past few years. Little impact was seen in the city’s real estate from the interest rate cut in 2015.

Montreal Real Estate Prices (Teranet-National Bank HPI)

Annual percent change of real estate prices in Montreal.

Source: National Bank of Canada, Teranet, Better Dwelling.

The sudden deceleration of Canada’s major markets are going to make it hard to read the changes. The sudden acceleration after a big decline can a sign of recovery, or a dead cat bounce. If prices fail to break out above the previous high, the market would resemble a textbook asset bubble.

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  • Saltzman 6 years ago

    I don’t trust CREA numbers. They’re doctored with “qualitative” measures. Banks use Teranet for a reason.

  • Yusef 6 years ago

    Look at the Toronto chart. There’s some people that saw that deceleration, and call that a recovery. You’re still looking at a loss of $200k if you bought at peak, and rates are rising at a pace faster than general incomes can grow.

  • Old Bitty 6 years ago

    Everyone needs bitcoin to make a transaction, it’s a limited product, and therefore it can only go up.

    What’s that? You can use alternatives like cash? It’s limited, but people can shift to different platforms? That means it can go in either direction, at any time due to demand‽

    Replace bitcoin with any real estate market.

  • Willy 6 years ago

    Does Teranet index cover all three types i.e. detached, attached and condos or only detached houses?

    • Jen 6 years ago

      It’s a composite, so weighted by housing type per market.

  • LFS 6 years ago

    There are 16 listings in a small neighborhood in Surrey, B.C.
    Last year there were 4 in same hood. Some listed for over a year.

  • Grizzly Gus 6 years ago

    Eye of the hurricane

  • SCE 6 years ago

    Doesn’t the site say not to look into short term monthly numbers…. if they are up? But if that monthly number happens to be down then the market is crashing….. JOKE!

    Really such a biased site. Bottom line is it’s down small MoM but still have decent gains ABOVE inflation YoY.

    Tick Tock. BD4L

  • George Hamilton 6 years ago

    “The Teranet HPI and CREA HPI measure different data sets, at different times. The Teranet HPI measures at the land registry, meaning sales are donezo. CREA HPI measures at the MLS, which uses the point of sale but before transfer. In a normal market, there’s probably not much of a difference.”
    Actually, there is a very big difference. The closing date is usually anywhere from 1 to 3 months AFTER the sale date. For that reason, the Teranet index is a mish-mash of sales that took place 1 to 3 months prior to their closing date (but just so happen to close in the same month), so the index is stale by the time it’s published. By contrast, the MLS® HPI is based on sale date i.e. the date on which an unconditional offer is accpeted or non-title conditions are removed. For this reason, it is a far more timely price measure, since sale date well proceeds closing date. That’s why the Teranet index always follows the MLS® HPI with a lag. Fun fact: when the Bank of Canada talks about home price trends in its Monetary Policy Report or Financial System Review publications, it cites the MLS® HPI, not the Teranet index — because it knows the MLS® HPI is way better than the Teranet index.

    • Poki 6 years ago

      lol @ “way better”

      The MLS excludes 20% of sales, and includes sales that fall through. For just Toronto, they’re including about 100 sales per month that are never made.

      Fun fact: OSFI requires banks and mortgage lenders to use Teranet, because it’s more accurate than the MLS.

      • Bluetheimpala 6 years ago

        lol. What did 5 fingers say to the face? tick tock. BD4L.

      • George Hamilton 6 years ago

        The “20%” stats is soimething you pulled out of your hat, as no reliable source of data exists re: MLS market share. as for the 100 sales per month that dopn’t close in Toronto: given the volume of sales and the likelihood that the sales that fall through are spread over a large area, do you honestly think fall-throughs have a material effect on the MLS HPI, especially given the methodology by which it is calculated? If so, pls explain why.
        If the Teranet index is better, why do you think the Bank of Canada refers to the MLS HPI and not the Teranet index when discussing home prices the Bank’s publications? Also, OSFI likely refers to the Teranet index for capital adequacy ratios only because the Teranet index includes markets not yet in the MLS HPI. When market coverage for the MLS HPI grows far beyond that covered by the Teranet index, do you honestly think OSFI will continue to favour the Teranet index over the MLS HPI?

  • Jeff Peterson 6 years ago

    Mississauga prices were down a bit in October too across all product types except condo apartments.

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