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In brief, January house prices were down 0.1% nationally. On a city basis, they were up most in Hamilton at 1.04% followed by Vancouver, Victoria and Winnipeg

Tracking Canadian House Prices



This post uses data on Canadian house prices taken primarily from: Teranet – National Bank National Composite House Price Index ™. The index is published monthly on or slightly after the 12th of each month at www.housepriceindex.ca. The 6-city index includes Vancouver, Calgary, Toronto, Ottawa-Gatineau, Montréal, and Halifax, while the 11-city index adds Victoria, Edmonton, Winnipeg, Hamilton, and Québec City. A snapshot of the month-over-month (mom) and year-over-year (yoy) changes in the indices is shown below in Table 1.

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In brief, January house prices were down 0.1% nationally. On a city basis, they were up most in Hamilton at 1.04% followed by Vancouver, Victoria and Winnipeg. The rest saw monthly declines with Montreal showing the most at 1.22% followed by Ottawa at 1.02%. The west coast cities are probably still influenced by hot China money. Hamilton is a surprise until one considers the commuter rail link to Toronto and the relatively cheaper house prices there. The Teranet – National Bank National Composite House Price Index™ is the is the source for all data and charts used in this article unless otherwise noted. Clicking on and image will open it in a new tab or window allowing it to be enlarged. Table 1. The monthly and annual changes in the six and eleven-city Teranet indices.
National Composite House Price Index™ for Jan. 2015
Index
Level
MOM
% Change
YOY
% Change
6-city index 178.01 downArrow – 0.14% + 6.52%
11-city index
177.35
downArrow 0.09%
+ 5.92%
As the January 13, 2016 Teranet newsletter (summarizes (note that this link is for the current issue only) (emphasis added): In January the Teranet–National Bank National Composite House Price Index™ was down 0.1% from the previous month, a second consecutive monthly decrease. A January decline has happened only three times in 17 years. For the first time in 11 months, prices were down on the month in seven of the 11 metropolitan markets surveyed: Montreal (?1.2%), Ottawa-Gatineau (?1.0%), Calgary (?0.7%), Edmonton (?0.5%), Quebec City (?0.4%), Toronto (?0.2%) and Halifax (?0.1%). For Ottawa-Gatineau it was the fifth consecutive monthly decline (cumulative ?4.7%), for Calgary the fourth (cumulative ?4.4%), for Edmonton the third (cumulative ?1.7%). For Toronto it was the first monthly decline in 11 months. Prices were up in January in Hamilton (+1.0%) Vancouver (+0.9%), Victoria (+0.7%) and Winnipeg (+0.3%). For Vancouver it was the 13th consecutive month without a decline, for Victoria the fifth. The graph of the composite index in Figure 1 shows a continuing linear trend suggesting the Canadian housing bubble is intact although current growth is leveling off slightly. Figure 1. Composite 11-city index for the last year. Figures 2 and 3 give a graphical picture of the cities in the two indices. Figure 2. Charts of the cities in the 6-city and 11-city indices while figure 4 shows their location on a map of Canada]. Figure 3. Charts of the other cities in the 11-city index are: Figure 4. The cities in the indices are shown on this map. Clicking on the map takes you to an interactive version and web page that shows the latest index data. Clicking on any city creates a chart of that city’s data. Current values are shown in the right-hand sidebar. The November 2015 composite index chart in Figure 1 is shown in Figure 5 with a linear regression line added. The linearity is nit characteristic of bubbles which exhibit exponential rise before collapsing. This does not mean that house prices may not moderate or decrease, but it suggests such a change may be gradual rather than precipitous. We update Figure 5 only 1 or 2 times a year. Figure 5. Figure 1 for Nov. 2015 with a linear regression line added. Nov-composite A monthly communiqué is available from the site or by email subscription.

Addendum: 20140213

An article in ZeroHedge, Did Canada Just Pop Its Housing Bubble?, states that Canada’s housing market is the most expensive in the world (60% over-valued by historical standards according to a Deutsche Bank report.

Bank of Canada (BoC) Quarterly Review

The BoC in their Bank of Canada Review – Winter 2011-2012, perform an in-depth analysis of hosing in Canada. In the following chart they show the increase in Canadian house prices: The amount of mortgage debt carried by Canadians is shown by the following graph: The next chart shows the extent that individuals have increased their level of personal debt relative to their income. This is clearly unsustainable but the fact that the chart has shown no downturn indicates that Canadians have not learned any lesson regarding their levels of personal consumption. The main conclusions of the study are:
  1. Increases in home-secured debt, particularly home-equity extraction (increases in mortgage debt and draws on HELOCs on existing houses), contributed the largest share to the rise in total household debt in Canada between 1999 and 2010.
  2. A significant share of the funds borrowed against home equity was used for consumption and home renovation.
  3. Household indebtedness constitutes an important source of risk to household spending, since it makes households more vulnerable to substantial negative economic consequences in the event of a correction in house prices.

Other Sources of Data

The IMF published an extensive review of housing in Canada in December, 2011: Canada: Selected Issues Paper. Country Report No. 11/365 Country. Their main conclusion is (bolding is theirs): Our econometric findings suggest that house prices are higher than the levels consistent with current fundamentals in a number of Canadian provinces and that a correction in house prices would have measurable effects on consumption and output through wealth effects.

Commentary

The actual Teranet data is available for download from the above site. The data is based on what they call a sales pair. For their methodology, they require data on single family homes that have sold at least twice in their reference period. The first sale marks the beginning of a calculation period and the next sale marks the end. They use a linear interpolation to get price points in between the sales pair. Similarly they use a linear extrapolation beyond the period covered by the calculation. The graph of the Teranet data is quite linear, especially from 2001 on. This tells us that based on the slope of the red line, house prices have been increasing on the average at a steady annual rate of about 7.5%. The Bank of Canada study documents a disturbing increase in Canadian indebtedness and particularly indebtedness tied to housing prices. A strong correction in prices or a significant rise in interest rates would have a major negative economic impact. Mortgage insurance is provided by the Canada Mortgage and Housing Corporation (CMHC). A major correction leading to increased defaults could mean that in the future, the Canadian taxpayer has to bail out an insolvent CMHC.

20140214 Update

Kyle Bass sees a bad ending for Canadian house prices this year: The Annotated Kyle Bass.

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Ian Nunn -- Bio and Archives

Ian is a retired information technologist. While working at Health Canada he completed a BCS degree with highest honours at Carleton University in 1999. In 1998 he took a leave of absence from the federal government and worked as a consultant to Ontario Hydro Nuclear for 15 months in Y2K risk management. He retired from the government in 2000, went on to earn an MCS degree at Carleton, 2002, and subsequently completed the requirements for a PhD except for a dissertation.

Several years of graduate studies have equipped him to do thorough background research and analysis on topics he finds engaging. He is owner of the eclectic blog, The POOG. The acronym “POOG” came from a forgotten source: “pissed-off old guy”. A web search found a more flattering but accurate association: ”The mightiest of all men. He fights ignorant darkness in the name of wisdom, truth, courage, and honor.”

Ian lives in Ottawa.


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