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US Federal Reserve: Canadian Real Estate Prices Are The Fastest Falling In The World

US Federal Reserve: Canadian Real Estate Prices Are The Fastest Falling In The World

Canadian real estate prices were the fastest rising in the world, just a few months ago. Now we’re claiming the opposite title, as the market explores where prices should be. Newly released Federal Reserve Bank of Dallas (the Dallas Fed) numbers, show a decline in home prices for the third quarter of 2017. This is the first time in over five years, that Canadian real estate prices have declined for a quarter. Despite the quarterly decline, prices still remain significantly higher than the year before.

US Federal Reserve Home Prices Index

The Dallas Fed publishes home price indexes for academics and researchers. Today we’ll be looking at their Real House Price Index (RHPI). It’s the same concept as the HPI that Teranet and the Canadian Real Estate Association (CREA) produce. In fact, they actually use CREA data to create it. They also combine it with data from Royal LePage, Statistics Canada, and UBC. This helps them get a cleaner, and more comprehensive look at the general market.

The inflation adjusted score tracks the aggregate of urban markets across the country, and is updated quarterly. You won’t be able to use these numbers to determine how much you have to pay for your neighbour’s house. Instead, you should use these to get a better read on national home buying trends, and the economy in general. Housing is a very large industry in Canada, and a slowdown would ripple throughout the economy.

Source: US Reserve Bank of Dallas. Better Dwelling.

Canadian Real Estate Prices Dropped 3.82% In Q3

Canadian real estate prices dropped the most since the early 1990s, according to the the Dallas Fed. Real home prices, a.k.a. home prices adjusted for inflation, fell 3.82% in the third quarter of 2017. The single quarter decline is the first decline since 2012, and the largest since the first quarter of 1991. This is the largest single quarter decline in the world according to the Dallas Fed’s global index. The second largest decline they observed was in Italy, where prices fell 0.38% in the quarter.

Source: US Reserve Bank of Dallas. Better Dwelling.

Canadian Real Estate Prices Are Up Over 7% Still

Despite the large quarterly decline, Canadian real estate prices are still much higher. The index is 7.44% higher than the same quarter last year, almost twice as much as the aggregate index for other countries. The increase is quickly tapering from peak growth observed in the first quarter of 2017. The quarterly decline is significant, but even so, the market is out performing many other markets.

Source: US Reserve Bank of Dallas. Better Dwelling.

Remember that a single data point isn’t indicative of a trend, but the size of the decline is worth taking note of. This marks a break in the 5 year upward trend the country has seen, and might just be a breather, like in 2012. It could also be the beginning of a broad market correction, like that seen in 1990. The most interesting takeaway is this break occurred starting six months before OSFI mortgage rules were rolled out to cool conventional mortgage borrowing. The rule changes add significant uncertainty to the market, especially after prices are starting to look a little softer.

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39 Comments

  • Reply
    Trader Jim 4 months ago

    The most truly amazing thing in these numbers wasn’t mentioned, which I’m a little surprised you missed. This quarterly decline is the third largest in Canadian history, but look at the impact in contrast to prices on the index timeline. Almost minimal. If you look at the impact on previous run ups, it sets off a cascading decline.

    No one can tell what the future holds, but it should be concerning to governments that the third largest decline in Canadian history barely put a dent in the rise of prices that occurred from 2016 to 2017. Unbelievable that they let it get so out of hand, and the only way to correct that now is a prolonged correction.

    Failing to correct will put a disproportionate pressure on the economy, causing us to not be able to reach our optimal economic growth. Those three charts are all you need to understand how broken housing is, and how out of control inflation has become in Canada.

    • Reply
      FH 4 months ago

      Even as a real estate professional, I don’t think the climb that we’ve observed is even close to healthy. It’s ridiculous for people to even imply that these rises were normal. Low rates combined with speculators drove prices too high, too quickly. Speculators don’t really care, because they’ll be out a few months after buying.

      Buyers that plan on living in the home, or buying at these prices, need to understand that their home will retain value over time. But don’t expect to sell it in 5 years, and make a huge profit at these levels.

      • Reply
        Investor 4 months ago

        You’re one of few exceptions. Most real estate professionals now prefer to justify why the prices should’ve been allowed to continue rising.

        Something is definitely coming, but no one knows when and how bad it will be. We’re all going to suffer the impact from the collective stupidity of some realtors, speculators and misinformed buyers who helped fanned the flame either knowingly or unknowingly.

      • Reply
        Tits McGee 3 months ago

        FH,

        “Even as a real estate professional…..”
        Are you admitting that many real estate “professionals” are either lying to thier clients or have hit a level of irrational exuberance.!?

        I appreciate your honesty, you are the 1% that is actually not a scumbag.

    • Reply
      bluetheimpala 4 months ago

      We’re shook Jim. Like a deer in the headlights. People don’t know what to do and in many cases, would be underwater or with no profit if they sold and they “need” some upside. We’re dealing with a lot of $$ for most people; if it wasn’t then we wouldn’t be having a problem. It isn’t just overpaying for something, which sucks, but the 25 year debt obligation. Also, I would argue there is a lot more at play vs the last downturn. What we’re going to see play out is a huge bubble/scam/fugazi come undone.

      Similar to ANY pump and dump scam, the late players who will lose their shirts or those who feel they haven’t made enough hold on in hopes of another bull run; what other option do they have? Try telling someone who bought in April – Sept 2017 their house is now 5-12% less and, in reality, could/should/will come down another 15-18%, maybe more, over the next 1-1.5 years and prices could take 8-13 years to recover fully. Or the ‘savvy’ investor who is already up $150K and if they just hold on for another year it will be $200K…these are desperate times.

      But here’s the rub; the longer the natives wait the easier it is for the speculators to get out and make a killing. I think we need a hard landing that will force the government to put in safe guards.

      BD4L

  • Reply
    Ahmed 4 months ago

    Important to note that this decline came with a small drop in Toronto and Vancouver. Also a quarter where Montreal, Halifax, and Ottawa saw prices rip higher. Things are about to get interesting.

    • Reply
      Millennial Falcon 4 months ago

      There was no decline in Vancouver. Prices are at an all time high.

  • Reply
    Cassidy 4 months ago

    People are paying a premium to get access to our security and healthcare. You can’t compare prices in a country that’s doing as well as Canada, with places like the US.

    • Reply
      Joe 4 months ago

      One of the things that gets really old, are the justifications people give for prices to keep going up: immigrants coming in with hoards of cash looking to buy condos, Toronto is the next biotech/technology/financial/media center of the universe, people are running to Toronto for healthcare, political situation is better, etc. if you heard these, then it’s your real estate agent that is dillusional or knowingly delivering a false narrative. Or your a late buyer with a growing feeling of buyers remorse. Or a myriad of others who want to drink the kook aid and believe the market will keep going up and up. It will not. Give up the excuses, and don’t look for the tax payers who didn’t make a horrible decision like you did to buy in overheated market to bail you out.

    • Reply
      MH 4 months ago

      All the while not paying Canadian taxes and not contributing to Canadian society/economy in any meaningful way:

      http://vancouversun.com/opinion/columnists/douglas-todd-death-taxes-and-the-terrible-injustice-of-metro-vancouvers-housing-crisis

    • Reply
      rhgoody 4 months ago

      Australia and New Zealand have the same services, and quality of health. They have *smaller* bubbles. You want to know what all three have in common? Anonymous beneficial ownership, easy citizenship, and laws that don’t require taxation of global income.

    • Reply
      bluetheimpala 4 months ago

      How so? If you have a good job in the US, your employer pays for your health care. Couple that with low taxes, cost of goods and housing and at the end of the day, I hate to say it, living in the US isn’t that bad. If I didn’t love Canada so much and despise a large swath of the US, I would be in Arizona or Florida.

      My wife and I always throw the cat at the TV when we see they home buying show from the US and some person in Atlanta, which is a gorgeous city, or Dallas or wherever is complaining that they can’t get the $150K 4 bedroom house and will have to settle for the $130K one that needs ‘some work’…read: a coat of paint.

      • Reply
        Brian 4 months ago

        It isn’t easy for a Canadian to live and work in the USA unless you are a doctor, very highly educated and skilled professional’ or, not need to work and have $millions. I have two brothers, one is a US and Canadian citizen and the othe is Canadian only. Both own Florida property in the same development. My US citizen brother can live without any concerns about taxation and health care issues but my Canadian only citizen brother cannot, he has to be careful about keeping his Canadian health care, have travel health insurance in the USA, no mortgage interest deductability from income tax, limit his time in the USA or he will lose Canadian residency, exchange rate and conversion charges devaluation of his Canadian dollars, no US Constitution legal rights because he is an “Alien”, can be refused entry into the USA for any reason or none, etc., etc., etc. It ain’t so easy.

    • Reply
      Alistair McLaughlin 4 months ago

      That’s funny. Why were they not paying the same premium 20 or 30 years ago, when house prices in Canada and the US were more or less comparable?

      Are you arguing that suddenly, in the past decade, the world has discovered that Canada has universal healthcare, and therefore housing prices went up?

      A typical detached dwelling in Toronto that would cost you $1.2 million could be had in the Tampa Bay area for about $250K. That leaves you with nearly a million left over. That is enough to pay for kick-ass health insurance for a large family for one hell of a long time, perhaps for life.

      So it can’t be healthcare. Obviously, it’s the warmer winters in Toronto.

    • Reply
      YYZ 4 months ago

      Paying premium for health care?! As if the wealthy foreigners are flocking into Canada because they tries to get free doctor visit by paying million of dollars premium on housing. That makes a lot of sense.

      To say Canada cannot compare to other country like US is just as ignorance as people say all American love guns, or all Canadian are friendly.

      I have moved to US for over 15 years and my whole family medical care are fully paid for in every company I have worked for. The services are top notch. I never have to wait for any service or major operations like my family and friends had experienced in Canada.

      If you are poor and under-educated, yes US can be a miserable place to be. But so as anywhere in the world.

    • Reply
      Vic 4 months ago

      Cassidy, I’d love to have what you’re smoking. A country that’s doing as well as Canada? Are you for real? Canada is a horrendous place to be, compared to the United States.

      Horribly low wages for SKILLED positions (I’m not talking about people doing minimum wage jobs), PhDs driving cabs due to a lack of skilled positions available due to the government importing people from 3rd world countries, claiming fake “shortages”, when there are none, horrendously high cost of living (everything from groceries to consumer products to insurance, gas etc.) and horrendously high taxes on everything you purchase, crazy unaffordable real estate prices and rents, extreme lack of consumer protection laws (banks can put you on the hook for fraudulent charges, unlike the US, no lemon laws when purchasing a new car etc. etc.). ……if I go on, I could write a book.

      If a skilled peron (electrical engineer) like myself were to move to Canada from the US, I it would be a VERY SERIOUS DOWNGRADE in EVERY ASPECT of my living standards. I would have to be mentally deranged to do that. That is exactly why the US is the most desirable destination for skilled immigrant. Because of our hyper-strict immigration policy designed to PROTECT THE STANDARDS OF LIVING OF AMERICAN CITIZENS AND RESIDENTS FIRST AND FOREMOST, most of these skilled immigrants proceed to Canada, which, of course could care less about their own people, doling out permanent residency to every one who walks in!!

  • Reply
    Trevor S. 4 months ago

    Can someone elaborate on the second chart? The drop looks almost as large as the US correction, does that mean we have started a US style correction for the next few years? Thanks, this stuff is very confusing if you just want to buy a condo in Vancouver.

  • Reply
    George 4 months ago

    Does anyone else see the parabolic climb from 2016 to today? Why are Canadians acting like this is normal?

    • Reply
      bluetheimpala 4 months ago

      FOMO. Desperation. Stupidity. Cheap money. Free money from relatives. Hamsters. Who knows.

      Canada has been gold for so long, everything has to get tarnished before it can continue to shine.

  • Reply
    Ex-Vancouverite 4 months ago

    My favorite part is all of the agents claiming the correction is over. Things haven’t barely kicked off. Sorry, but cities can’t have a rise in home prices this quickly, against a flat climb of income.

    Boomers gutted the most important economic centers in Canada, sending our best talent to places with cheaper homes and better salaries, like SAN FRANCISCO. The argument that a house in Vancouver comes with healthcare is also ridiculous, since most jobs in the Bay Area provide comprehensive healthcare for their employees, with lower taxes.

    Canadians won’t improve this country, until they stop drinking the Kool-Aid that was made in the 1980s, that convinced everyone to adopt national pride over logic.

  • Reply
    Davos Was Fun 4 months ago

    BAHAHAHA. I love this. Everyone was jumping on the Canada is the fastest growing prices in the world, but radio silence on the decline. Can you also start writing articles that with how much prices are dropping by the day? PLEASE!

  • Reply
    rhgoody 4 months ago

    Remember that this is an index. We doubled price growth from the well documented bubbles of New Zealand and Australia.

    Interest rates in Canada were set below inflation, which means it was cheaper to borrow money than save. In order to correct this issue with the money supply, they’ll need to raise interest rates above inflation for an equal period of time.

    Once this happens, the price of homes will have to adjust for the true value of money. It’s going to be a messy process, for both wages and home prices.

    • Reply
      bluetheimpala 4 months ago

      This is really,really insightful and it will be lost on most people as many, like myself, don’t understand economics fully. What you’re laying on us are fundamentals that are the basis of advanced capitalist consumer-based economies.

      PEOPLE, IF YOU DON’T READ THIS COMMENT AND THEN THINK ABOUT IT, DO SOME DIGGING AND THEN LOSE YOUR SHIT…PRAY. FOR.MOJO.

    • Reply
      Slawomir Ozog 4 months ago

      I doubt that interest rates will be tipped all the way to the other end (above inflation as you state). Hence you see central bankers eye-ing a long term interest rate around 3% while historically we’ve had much higher rates (over 6% prior to 2008). I mostly refer to the US Federal Reserve with this comment but the Bank of Canada isn’t going to do anything radically different. I like http://www.forexlive.com for overall financial world news. To be sure, there is pain coming for over-leveraged fools but the damage done to dilligent savers’ purchasing power post-2008 is never going to be undone.

  • Reply
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  • Reply
    Bob 4 months ago

    There are 1,000,000,000 communists across the pond desperate to drop millions of dollars for a steaming pile of dung in east Van. And we don’t really have too many steaming piles of dung to sell them, relative to their population. Which makes it very easy to be swamped by demand at the margin.

    The only way this ends is if they find a completely different asset class to chase with their copious communist cash. But as someone pointed out, it is difficult to find places with anonymous beneficial ownership, easy citizenship, and lax taxation laws/enforcement. Our political leadership has been even more eager to sell them steaming piles of dung than they are to purchase it!

  • Reply
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  • Reply
    Justin Thyme 4 months ago

    Compare the graph for Japan to the graph for Canada. Are we in for the same ride?

    Japan is a perfect example of a graph for a bubble and burst.

    Looks ominously like Canada’s, only leading by 30 years.

    Perhaps a look at what happened in Japan is in order.

  • Reply
    Asterix 4 months ago

    This RE crash in GTA is going to be spectacular!

    Once you analyse all the data that is out there, all that is left in the horizon are massive dark clouds.

    This will not be pretty. Many will lose their shirts.

    Oh well, be smarter next time and do your own research instead of trusting the RE cartel.

    • Reply
      Joe 4 months ago

      Next time is about 20-25 years away, maybe more. Many of those buyers may not haven even been born yet. By then, this bubble will be long gone and buried, and that new generation will be told “this time it’s really different”.

  • Reply
    Justin Thyme 4 months ago

    Canada is a much smaller market than the US, and so it is not buffed as much. We only have three major population centers, and the rest is not much. So what happens in the major centers dominates. The US is much more spread out. What happens in the major population centers is moderated. Do the fact that the graphs for Canada are much more dramatic than the US is to be expected.

    The second concern is that the Canadian mid-middle class is richer than the American mid-middle class, and has more money to spend on housing. Canada does not have the extremes between the high and the low, with the middle missing, like the US. Large swaths of the US are living in very sub-standard housing. If six families live in a trailer park, four live in good housing, vs. one family living in a trailer park, nine live in good housing. The demand is different, the market is different. American cities have much greater extremes in housing than Canadian cities. It plays havoc with the pooled statistics.

    • Reply
      Alistair McLaughlin 4 months ago

      It was the middle class suburbs that were Ground Zero for the US housing crash a decade ago. Since an even higher proportion of Canada’s housing market consists of similar middle class suburbs (as opposed to slums & trailer parks on one extreme and opulent gated communities on the other), I wonder if that means Canada’s housing correction is going to be that much worse.

  • Reply
    Lahdeedah 4 months ago

    Hi Daniel,

    Please update your graph (Global Real Home Price Index Change (Quarter) for 2017 Q4 when you get the data – will be very interesting to see if the downward trend continues to the levels of 1982 and 1990/91, especially given the three rate hikes in the past 6 months! Thanks!!!

  • Reply
    Slawomir Ozog 4 months ago

    After roasting the post about pensions dated February 2nd 2018, I just wanted to leave a tip of the hat here for an excellent article, Better Dwelling. Love the 3rd chart with the YoY change! Well done.

  • Reply
    kris 4 months ago

    A large portion of Canadian mortgages are set to renew in 2018…does anyone have the Jan to Dec month by month breakdown?

  • Reply
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