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Canadian & US Real Estate Markets Decelerate at Trader’s Narrative

By several measures, the Canadian real estate market has the characteristics of a budding bubble. This is especially the case for the Vancouver market which has completely gone bonkers.

The Teranet–National Bank House Price Index measures Canadian home prices by tracking the repeat sale of homes through land registries and other publicly available data. Teranet, by the way, went public in 2006 as an income fund on the TSE and was bought out in November 2008 by Borealis Infrastructure, a division of OMERS Private Equity.

The recently released data is for February 2010 and shows a sharp recovery. However, prices increases are decelerating with a +0.2% month-to-month increase - the smallest in the 10 month period from their trough:

Teranet National Composite House Price Index annual change Feb 2010

The national average smooths out quite a bit of volatility from different regions. For example, the largest decline from the 2007 top belongs to Calgary (not Vancouver as many would imagine) as the sharp drop in oil prices completely demolished the white hot local economy based on the oil sands projects. The biggest month to month decline (-1%) for February was in Ottawa’s usually stable market.

The Teranet–National Bank House Price Index measures the national average as well as 6 metropolitan areas. Of these, all are above their 2007 peaks, except for Calgary. The national annual increase was pushed up by the two metropolitan areas with the hottest real estate markets: Toronto (13%)and Vancouver (12%). Here is a chart of the Teranet-National Bank House Price Index showing that on average, Canadian real estate prices have risen 33% since June 2005 (base value set at 100):

Teranet National Composite House Price Index Feb 2010

The Canadian government, similar to China, has recently taken steps to cool down the real estate market and prevent the formation of a speculative frenzy. The new guidelines were announced last week and cover three areas:

  1. All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a variable mortgage or a shorter term.
  2. The maximum amount Canadians can withdraw in refinancing their mortgages is now 90% of the value of their homes (from 95% previously).
  3. A minimum down payment of 20% for government-backed mortgage insurance for rental income or speculative purchases (compared to just 5% or zero previously).

We can contrast and compare the Canadian market to the US real estate market easily by looking at the S&P/Case-Shiller House Price Index which is also based on the repeat sales method:

case shiller home prices annual change Feb 2010

The recently released data for the 10-City and 20-City Case-Shiller indexes shows that their 12-month change is positive for the first time since December 2006. But 11 of 20 cities saw year over-year declines and 19 of the 20 metro-areas and both the 10-City and 20-City Composites fell month-to-month (that is from January to February 2010). As well, in sharp contrast to the Canadian real estate aggregate prices, the US market is still far from its peak:

case shiller home price index Feb 2010

The 20-city Composite Index fell almost -1% in February, from January. That is its fifth monthly decline and the lowest it has been since June 2009. The only faint glimmer of hope I could find in the report is that the 10-City Composite (seasonally adjusted) shows a very faint increase from (158.64 to 158.79).

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One Response to “Canadian & US Real Estate Markets Decelerate”  

  1. 1 MachineGhost

    Check out these real Vancouver listings. Unbelievable.

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