Canadian real estate printed huge gains from last year, due mostly to condos. The Teranet – National Bank of Canada House Price Index (Teranet HPI) is just a point below the all-time high. That was the good news. The bad news is price growth across Canada has decelerated for the longest period since 2008, with Toronto turning negative for the first time since 2009.

About The Teranet HPI

The Teranet HPI is mistakenly called a “lagging” indicator by agents, due to the use of transfer data. When your local board reports numbers, they use MLS sales information. The result is the prices Teranet uses have been agreed to up to 3 months before. On the other hand, Teranet only uses finished transactions. In a booming market, few sales fall through, so the MLS is a great measure. In a declining or cooling market, people start looking for ways out of sales, which make Teranet numbers interesting.

Quantity is another thing to note. The Teranet HPI includes all transfer data, not just sales done through the MLS. The result is Teranet has an estimated 20% more sales included, vs your local real estate board. If I told you 1 in 5 sales were excluded from stats, how would you feel about the numbers you just read? That’s why banks use Teranet.

Which should you be using? Neither number is better or worse than the other, just different. In a fast moving market, the MLS can give you a short term edge. In a slow moving market, the Teranet HPI is worth looking at. That said, short term gains that the MLS note are mostly useless. Homes are large assets, with high transaction costs and low liquidity. The usefulness of month-over-month data points is largely overstated. Now, onto the numbers.

Canadian Real Estate Prices Are Decelerating For The Longest Period Since 2008

The Composite 11, a weighted aggregate of all home types in Canada’s 11 largest cities, made a pretty big jump in May. The index saw home prices rise 1.02% from the month before, bringing prices 4.48% higher than last year. Prices are 0.6% below the peak obtained in August 2017, but things aren’t all rosy. Prices decelerated for 11 months in a row, the longest stretch since before the Great Recession.

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.

Toronto Real Estate Prices Go Negative For The First Time Since 2009

Toronto real estate had a big month, but due largely to what a National Bank analyst called a “tight” condo market. May’s prices were up 1.32% from the month before, outpacing the country. Despite the huge jump, annual price changes went negative for the first time since September 2009. Toronto is seeing the longest price growth deceleration in the whole data set going back to 1999.

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 Hits A New Record High

Vancouver real estate prices moved to a new high, due entirely to condos. The city saw a monthly price increase of 1.04% in May, bringing prices 15.42% higher than last year. An NBC analyst noted condos increased 17.5% annualized from September vs 4.9% for other housing types. It’s Vancouver, so the other home segment climb might seem small, but it’s actually a very large climb.

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 Is Still The “Hot” Market That Barely Moves

Montreal real estate hit a new peak, but it’s doing so very slowly. Prices in May were up 0.31% from the month before, well below the national average. The gains add up to 3.65% from the year before, which is actually a very big climb. Just not when you’re viewing it in contrast to frothier markets like Toronto and Vancouver.

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.

After a record run, it’s not unusual to see prices decelerate across the board. The increased focus on condo prices would be an encouraging trend, if you’ve never seen the loan numbers for condos in cities like Toronto. Nearly a third of buyers that took possession of a condo in Toronto last year are paying more than triple a typical variable rate. This means they’re either going to have a very difficult time breaking even if prices climb, or intend to hold for just a brief period and flip it back into the market. Speculative buyers are great, until they aren’t.

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