Wednesday, September 30, 2009

Teranet House Price Index for July 2009


Monthly price rises in all markets surveyed

Canadian home prices in July were down 5.1% from a year earlier, according to the Teranet-National Bank National Composite House Price Index™. Though it was the eighth consecutive 12-month decline, it was also the first time in 13 months that prices in every region covered by the index were up from the month before. For the composite index it was a third consecutive monthly rise. The trend reversal is consistent with improving market conditions for the country as a whole in recent months - more homes have been selling and fewer have been coming on the market.

Teranet – National Bank National Composite House Price Index™

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The July monthly rises were 2.6% in Ottawa, 2.2% in Toronto, 1.5% in Vancouver, 0.8% in Halifax, 0.7% in Montreal and 1.0% in Calgary. For Calgary it was a first monthly rise after 12 consecutive months of decline. In three of the six markets surveyed, July prices were also above the pre-recession peak, as Halifax and Ottawa joined Montreal on this score. In the other markets, prices were still below those of a year earlier. The decline was 4.6% in Toronto, 9.3% in Vancouver and 11.1% in Calgary.

Teranet – National Bank House Price Index™

The historical data of the Teranet – National Bank House Price Index™ is available at

Metropolitan areaIndex level
July 2009
% change m/m% change y/yFrom peakPeak Date
Calgary149.751.0 %-11.1 %-14.6%August 2007
Halifax122.160.8 %0.5 %0.0%July 2009
Montreal124.850.7 %2.7 %0.0%July 2009
Ottawa118.642.6 %2.6 %0.0%July 2009
Toronto110.882.2 %-4.6 %-5.5%August 2008
Vancouver136.671.5 %-9.3 %-9.3%June 2008
National Composite123.871.6 %-5.1 %-5.3%August 2008

The Teranet–National Bank House Price Index™ is estimated by tracking observed or registered home prices over time using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index. This is known as the repeat sales method; a complete description of the method is given at

The Teranet–National Bank House Price Index™ is an independently developed representation of average home price changes in six metropolitan areas: Ottawa, Toronto, Calgary, Vancouver, Montreal and Halifax. The national composite index is the weighted average of the six metropolitan areas. The weights are based on aggregate value of dwellings as retrieved from the 2006 Statistics Canada Census. According to that census1, the aggregate value of occupied dwellings in the metropolitan areas covered by the indices was $1.168 trillion, or 53% of the Canadian aggregate value of $2.207 trillion.

All indices have a base value of 100 in June 2005. For example, an index value of 130 means that home prices have increased 30% since June 2005.


Marc Pinsonneault
Senior Economist
Econony & Strategy Group
National Bank Financial Group

Teranet - National Bank House Price Index™ thanks the author for their special collaboration on this report.

1 Value of Dwelling for the Owner-occupied Non-farm, Non-reserve Private Dwellings of Canada.

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The Teranet - National Bank House Price Index™ is an independently developed representation of the rate of change of Canadian single-family home prices. The measurements are based on the property records of public land registries. The monthly indices cover six Canadian metropolitan areas: Calgary, Halifax, Montreal, Ottawa, Toronto and Vancouver. The metropolitan areas are combined to form a Canadian composite index.

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Tuesday, September 22, 2009

Vancouver CMA CMHC Data for August 2009

CMHC released housing market data for the month of August 2009 and here is the data for the Vancouver area.

927 Starts
18,992 Under Construction
1,227 Completions

Monday, September 21, 2009

The Psy-Fi Blog: Sexual Trading

I think we need to think about what is talked about in this post in terms of our local real estate market. Have a read.

The Psy-Fi Blog: Sexual Trading

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Monday, September 14, 2009

What to do?

Well, I am not sure how to put this exactly. I am thinking of taking an extended break from this blog because of competing priorities. I have a wife, two kids, hobbies, work, friends, etc and, quite fairly, this blog is what gets cut when the other priorities come up.

I feel a little torn sometimes since I really am interested in writing about the subject matter and I would like more time to do better research and crafting interesting posts but it just isn't possible with my lifestyle right now.

I don't think I will shut down the blog completely since I believe I will find time to post once in a while and some of the other regular contributors will likely want to post from time to time, but you shouldn't expect the same regular posts that have been a big part of this blog since January 2007.

Tuesday, September 08, 2009

Fraser Valley Real Estate - August 2009 with Charts

Here are the charts based on the data released by the Fraser Valley Real Estate Board for the month of August 2009.

Sales were at a very high level compared to other Augusts.

Active Listings are on the high side.

Months of Inventory is at 5 which represents a balanced market.

The FVREB House Price Index is still 7% lower than peak level but it has risen 6% since the low.
Price changes are still highly correlated to the supply / demand mix as represented by Months of Inventory.

Friday, September 04, 2009

Fraser Valley Real Estate - August 2009

From the Fraser Valley Real Estate Board:

(Surrey, BC) - The Fraser Valley Real Estate Board credits ‘move-up’ buyers and greater affordability for the second best August in its real estate sales history, bolstered by a summer of historically low interest rates.

There were 1,786 sales processed in August, an increase of 96 per cent compared to the 910 sales during the same month last year. Add in sales from June and July generated by many first-time buyers and the result is 5,857 sales – outperforming the summer of 2007, at 5,800, but far from matching 2005, when summer sales peaked at 6,866.

“The last three months was a welcome return to a busier, more stable market, but also a discerning one,” describes Paul Penner, President of the Fraser Valley Real Estate Board. “Not every house was flying off the shelf like they did four years ago.”

“It’s a more complex market now, with variations in activity depending on the area and price and it requires knowledge, knowing what’s selling, for how much, and why.”

Penner says stability has returned to house prices, but with the average days on market in the Fraser Valley effectively remaining unchanged for six months, at just under 60 days for most property types, pricing remains highly competitive.

“Our August market poll reveals how much price matters. Over half of Fraser Valley buyers qualified for a conventional mortgage putting 25 per cent or more down, yet 39 per cent of REALTORS® who participated in our survey reported challenges in closing sales due to their clients’ inability to reach financing terms.”

The MLSLink® Housing Price Index (HPI) benchmark price of a detached home in August was $483,839, a decrease of 3.5 per cent compared to August 2008, when it was $501,317. In the last three months, the HPI benchmark price of a detached home has increased by 3.8 per cent. The HPI benchmark price of Fraser Valley townhouses decreased 4.7 per cent from $325,833 in August 2008 to $310,389 in August 2009, and in the last three months has increased by 4 per cent. The benchmark price of apartments also decreased year-over-year by 5.9 per cent, going from $250,888 in August of last year to $236,146 in August 2009, and has increased by 1.7 per cent in the last three months.

The number of active Fraser Valley listings in August decreased 5 per cent from July, dropping to 8,987 listings. This was a 24 per cent decrease from last year. The MLS® saw 2,470 new listings come on stream in August, 2 per cent fewer than in August 2008 and 23 per cent less than this past July.

Wednesday, September 02, 2009

Housing Market Sensitivity to Interest Rate Changes

In an efficient housing market, we should expect a house to behave somewhat as a bond or dividend paying stock would with the par value / selling price of the home changing to reflect the market rates that apply to the asset and the expectations about future rates. Since homes are largely purchased with borrowed money and capital should move to the optimal risk/return relationship, we should expect this relationship to exist, in some form.

Now we might argue that the housing market is not efficient and while this may be true over short and medium time horizons, no market can behave inefficiently (gross over/under valuation) over longer time horizons and certainly not forever.

Let's use a simple example:

Bob's house could sell for $1,000,000 today.
It could rent for $36,000 per year.
The gross yield is 3.6% - similar to what could be earned on a 10 year government bond. We can use high quality bonds as a proxy for the rate of return we should expect on a house - government and agency bonds are very liquid and very safe.

Let's assume that for whatever reason (inflation expectations, competing returns, currency devaluation, etc) the yield rises to 5% and the rent stays the same. What will Bob's house be worth in the new environment? House Value * 5% = $36,000 or House Value = $36,000 / 5%
The house would be worth $720,000 in the new return expectation environment.

This may bring up a valid question: What if rents rise with inflation? Good question, keeping in mind all that is required to move the bond market is EXPECTATIONS about inflation and not inflation itself, so the idea of rising rents correlating with expectations about inflation may be questionable. Rising rents require rising wages and there can be a significant lags between inflation expectations and wage increases.

Assuming rents rise over 10% to $40,000, let's use the example above where return expectations are now 5%. House Value = $40,000 / 5% The house would be worth $800,000 in the new return expectation environment.

These examples are grossly oversimplified with many unaccounted factors. We can crunch the numbers all day long but what I have intended to show is that in a rising rate environment we can expect house prices to fall to meet expectations about the return required on an investment. What we have experienced since 1982 is a falling rate environment where 10 year Government of Canada bond yields have fallen from over 16% to under 4%.

Assuming $40,000 annual gross yield:
House Value at 4% = $1,000,000
House Value at 16% = $250,000

Can interest rates fall from the current level? Are they more likely to rise? Will they stay the same? What about inflation expectations? What will the market's reaction be to inflation expectations?

If you want the current level of house prices to be maintained then you should be hoping for inflation expectations to remain low, that rates stay low, and that rents keep pace with incomes for a very long time. This probably would not bode well for economic prospects and consequently incomes and rents but alas you cannot have your cake and eat it too!

This chart shows home prices correlated to mortgage rates. You can see that when mortgage rates were much higher, home prices were much lower and that when mortgage rates have been lower, home prices have been higher. There is a lower bound to mortgage rates but no upper bound so you could say that the risks are lopsided.

Disclaimer: I am not pretending that we should value all homes like a bond or stock since clearly there are other factors at play such as densification, gentrification, decay, depreciation of structures, among other potential rewards and risks (real estate is not fungible). Additionally, rents can rise and fall unlike bond coupons which remain constant until maturity. The dividend discount model may be a good way to value a home based on cash flows but it can get pretty complicated and we must assume growth factors which is tricky at best.

Tuesday, September 01, 2009

July 2009 Vancouver CMA CMHC Stats

Here is what CMHC has to say:

Housing starts continued to trend lower in July. Foundations were poured for 517 new homes, down 73 per cent from July 2008. The majority of new housing projects were in Surrey and Vancouver City, and these were mostly single detached homes.

During the first seven months of the year, a total of 3,859 homes were started in the Vancouver census metropolitan area (CMA) compared to some 12,082 units for the same period last year.

Single-detached home starts have been trending up since the beginning of the year, and accounted for almost half of the new developments in July. Multiple-family units normally accounted for the larger share of total housing starts inVancouver.

Multiple-unit projects, on the other hand, continued to retreat. Developers have been taking a wait and see approach towards the multi-unit market even though the number of units absorbed has begun to trend upward and narrow the gap vis-à-vis last year's figures. There are still numerous projects under construction and a sound inventory of unsold new homes available. Homebuilding will remain modest until more of the inventory of new and existing homes is sold off.

Here is the data:

There were 517 housing starts. 236 of those starts were single family homes. 96 of those were in Surrey. Single family homes are simple and quick to permit, construct, and sell if need be.

There are still 19,292 housing units under construction in the Vancouver CMA. 13,754 are condominiums. There are 4,912 units under construction in the City of Vancouver and 3,007 in the City of Surrey.

There were 925 completions during July. 367 were townhouses. There were 222 completions in the City of Surrey.

The number of completed but unabsorbed units has been rising and is at 2,350. 726 of those are in Surrey and 307 of those are single family homes.