Canadian real estate prices continue to see cooling growth, but still saw growth. The Teranet – National Bank House Price Index (Teranet HPI) shows prices climbed across the country in April. The monthly rise sounds great, but there were a few warning flags. The increase was one of the smallest for an April, and most gains were in overheated condo markets.
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’s 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, on to the numbers.
Prices Across Canada’s Largest Cities Are Up Over 5%
The Composite 11, which is a weighted index of the 11 largest urban centres in Canada, made a climb in April. Composite prices, which are those of all home types, are up 0.2% from the month before. This brings the annual price gain to 5.62%, but only Vancouver and Victoria are above that number.
National Bank analysts Marc Pinsonneault noted, “20-year history of the index it was the fourth-smallest April advance, after those of 2009 (a recession year), 2013 and 2015.” However, 8 of the 11 major cities tracked did see prices climb, which is better than none.
Toronto Real Estate Is Up Less Than 2% From Last Year
Toronto real estate prices didn’t do so shabby in April, but are tame compared to last year. The index shows a monthly increase of 0.24%, bringing the 12 month change to a whopping *drumroll* 1.89% increase. Prices in the city are down 7.12% from the peak obtained in July 2017, and the gains have been concentrated in the condo segment. Worth noting the rapid deceleration of price gains.
Generally speaking, prices pushed higher across the country, but price decelerations continues. Most of the declines are in non-condo segments of housing, an observation made by the CMHC a few weeks ago. The rise in condo prices is believed to be the result of B-20, forcing more buyers into the same budget.
The concentration doesn’t necessarily justify higher prices for condos. In fact, the CMHC noted just a few weeks ago, that it made their overvaluation models spike. Turns out justified exuberance is still exuberance.