For some, the real estate market is “out of its slump.” For others it is simply “stabilizing.” Others still see “no signs of cooling.”
The varying pronouncements about Canada’s housing markets in mid-July suggest that there isn’t per se a single housing market, but instead a collection of local markets where prices and sale volumes adjust to local variations in housing demand and supply, sometimes in response to institutional interventions.
The latest release of the monthly housing statistics by the Canadian Real Estate Association (CREA) suggests that a “national” Canada-wide lens on housing markets shows a picture that is necessarily not reflective of any local housing market. Whereas the national housing market is the sum of its parts, it’s the parts that matter because consumers do not see or experience the national averages. Housing prices and sales volumes are inherently relevant only at local levels.
Whereas month-over-month comparisons are interesting, given the cyclical nature of housing markets, year-over-year comparisons are more meaningful. Hence, the 4.1 per cent increase in sales volume observed in June 2018 over May might suggest an upswing in national housing markets. Yet, it is obfuscating the larger underlying market dynamic: A comparison with June 2017 reveals a decline of 6.6 per cent in national housing sales.
Right there, even at the national level, two contrasting pictures emerge of sales, one suggesting that the sales were up (seasonally adjusted) and the other suggesting sales were down (actual sales) from May to June.
So, here’s the housing version of the glass half full riddle: were the markets up or down in June?
Barb Sukkau, CREA’s president, believes in the seasonally adjusted numbers as she reflected on the impact of stress tests, which increased the mortgage qualification threshold in January 2018, on housing markets. “The increase in June (sales) suggest that its impact may be starting to lift,” Sukkau said.
But when it comes to actual housing prices, signs of a recovery are not visible at the national level where the actual average housing price in June 2018 at $496,000 was 1.3 per cent lower than the average price a year ago. And this decline is before the prices are adjusted for inflation. Compared to May 2018, average housing prices barely rose by 0.3 per cent.
Hardly a hot market, at least at the national level.
CREA also publishes a home price index (HPI) that accounts for seasonal changes over time. Also, it accounts for the difference in housing types and sizes that may be active at one point in time but not the other. CREA’s HPI thus presents the change in housing prices of similar or identical housing stock over time.
The HPI for June 2018 also presents a conflicting picture where the index was modestly up by 0.9 per cent since June 2017 but down by 0.13 per cent relative to May 2018.
While the recent returns in housing markets are not stellar, a long-term view would suggest that housing markets in Canada have performed well where the HPI has been up 46 per cent since June 2013.
Hiding under the national averages are the peaks and troughs of local housing markets. Urban markets in B.C. report strong gains in prices year-over-year, whereas markets in Saskatchewan and the greater Toronto area report declines.
The HPI in greater Vancouver is up by 9.5 per cent over the past year. The strongest gains though came in the Fraser Valley, with an 18.4 per cent increase over the past 12 months. Prices in Vancouver Island followed with a 16.5 per cent increase.
Meanwhile, the index was down by 4.8 per cent in Toronto, Canada’s largest housing market. Contrasting the extremes are the restrained markets in Montreal and Ottawa where the HPI has risen by 6.5 and 7.9 per cent respectively.
So, is the glass half full or half empty? It depends.
Housing markets across Canada continuously adjust to local dynamics and nationwide regulatory changes to mortgage finance. While the short-term monthly dynamics might be a bit jittery, the long-term view of housing markets reveals their resilience and suggests the regulatory blues will eventually be shaken off, and the steady upward stride will continue.