Wednesday, April 29, 2009

Teranet House Price Index - April 2009

A downtrend now extending from sea to sea

Canadian home prices in February were down 4.1% from a year earlier, according to the Teranet–National Bank National Composite House Price Index™. The disinflation that began in February 2008 is now a year old. The retreat means that on the whole, Canadian housing has become a buyer’s market after five years of seller’s-market conditions from 2002 to 2007. February was also the sixth consecutive month in which the composite index was down from the month before – the longest run of monthly declines over the nine years covered by the index. The composite is now down 7.4% from its peak of last August.

Teranet – National Bank National Composite House Price Index™

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Of the six constituent city indices, four were down from a year earlier: Calgary (−8.1%), Vancouver (−6.4%), Toronto (−5.0%) and, new to the list, Halifax (−0.5%). While prices were still up from a year earlier in Montreal (3.2%) and Ottawa (2.8%), the 12-month increase in those two cities has decelerated markedly in recent months.

The recent trend of month-to-month declines in the composite index has now spread to all six markets. For Calgary and Vancouver it was the eighth straight monthly decline, for Toronto the sixth, for Ottawa the fourth. Halifax has shown monthly declines in six of the last eight months, Montreal in four of the last five months. The declines from index peak range from 1.6% in Montreal to 12.0% 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
% change m/m% change y/yFrom peakPeak date

2007- Aug

Halifax116.97-0.5%-0.5%-4.0%2008 - Nov
Montreal120.58-1.2%3.2%-1.6%2008 - Sep
Ottawa113.76-0.2%2.8%-3.8%2008 - Oct
Toronto106.75-3.1%-5.0%-9.0%2008 - Aug
Vancouver135.27-2.0%-6.4 %-10.2%2008 - Jun
National Composite121.16-2.0%-4.1%-7.4%2008 - Aug

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 
Economic & Strategy Team
National Bank Financial Group

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

Tuesday, April 28, 2009

Vancouver CMA CMHC Data for March 2009

Good morning,

I apologize for being a little sparse with the posting of late. Having a newborn baby at home is quite tiring and work has been very demanding the last couple weeks which leaves little time for providing quality analysis and posting. Jesse has really provided some exceptionally well thought out posts lately and I encourage you to read them. Thanks Jesse.

The CMHC released housing market data for March 2009 and here are the highlights.

Housing starts are continuing a deep downward slide in the Vancouver area and March 2009 saw only 509 new dwellings started.

Completions are continuing at an expected high pace with 1160 completions during March. There is seasonality to completions with more completions occuring in the summer on average.

The number of units under construction is falling dramatically at 24,446 down from a cycle high of just over 27,000.

The number of completed but unabsorbed units is now at 2,345 units up from 1,413 one year ago. We aren't even half way through the down cycle yet so I am looking for things to get much worse from here.

Friday, April 24, 2009

Raising Rents

An interesting case study of the provincial government’s law allowing landlords to raise rents above rent control to market rates was recently put to use with the residents of a West End apartment unit. You can read the news coverage here and here and, if you are truly interested in what is required under the Residential Tenancy Act's provision for Rental Increases, read the entire decision (pdf).

This is a bit of a long post but if you have interest in this case, you may also be interested in reading on.

In order to apply for a rent increase above the rent control limit, a landlord must show specific and comparable units whose rents are above what would be possible under normal allowed rental increases. The ruling went partially in favour of the landlords, who recently bought the units, and are looking to increase their profits.

Whether you agree or disagree with this provision in the Residential Tenancy Act is one thing. I would like to offer some commentary on how this particular case went and some observations I see ignored by the news coverage, the landlords, and the tenants.

Be Specific

It is immediately obvious the Dispute Resolution Officer (DRO) was required to use specific and comparable rents in deciding the outcome. For the most part the decision provided little in the way of specific rents from comparable units from tenants. The DRO used only a handful of comparable properties in making the final decision, all from the landlord.

In the decision the DRO has stated:

The landlords do not have to prove that the rent is significantly lower than all comparable rental units, but merely have to prove that there is evidence that in the current market, there exist similar rental units which attract a higher rent than what is currently being paid for the subject unit

An interesting interpretation of the Act; it effectively cuts the tenants from having their data used as balancing evidence. Scary perhaps. But if it's any solace most landlords don't resort to such rent increases, and not because they are bad businesspeople.

It is probably fair to say the landlords filtered units for rents that were purposefully higher than those in the units they own. It would be silly of them to present units that do not maximise the rents they can charge. But, yes, they are allowed to do this.

The tenants have learned the hard way that, while they needed to find specific and comparable examples to their units, when it came time to make the decision, it didn't seem to matter. Given all tenants in that neighbourhood have an incentive to keep their rents down, the tenants should have had no problem finding comparable rents that were not cherry-picked to be high. What I am not sure of is what burden of proof tenants are required to show to have their evidence considered and accepted. This is certainly a valuable lesson to be learned by others who may find themselves in a similar situation.

Subprime Tenants

What is often missed by looking at listing rents is that renters, like mortgage applicants, have different credit ratings. I am sure landlords will agree that there are tenants that are duds. If a landlord were to rent to such a tenant, to compensate for the added risk of taking on a deadbeat tenant, he should charge a premium.

Why this is important is that, while the Act looks at comparable rents to make a decision, no weight is given to the quality of the current tenants. It could be these tenants are “golden”; maybe they always pay their rents on time, perhaps even taking on repairs themselves since the rent is so good. The previous owner may have accepted lower rents because the risk was exceptionally low.

With new landlords, these unfortunate tenants have effectively lost their built-up credit and business relationship with the previous landlord. To be fair, the new landlords don’t know these tenants from a hole in the ground so are, perhaps a bit naively, treating them as any generic off the street renter. By raising rents to market rate, they are effectively raising rents to what they would charge a tenant with no “credit” history.

What are the current tenants to do? Perhaps they will accept the rent increase, act in good faith, and try to build up their past good favour again with the new boss. This will manifest itself by below inflation rent increases as the landlords realise the tenants are actually “prime” tenants. This assumes the landlord places value on low maintenance tenants. Not all landlords think this way, in which case I would strongly advise the tenants to find a landlord who does. There is no easy way to win a war with a slum lord, or even a landlord looking to offer a premium service for a premium price.

The problem now for the landlords, unfortunately, is that by taking an adversarial approach, they will most likely be paying more than they would should the rents have been raised at a smaller rate. The tenants who decide to stay will undoubtedly “work to rule”. Perhaps the little repairs and renovations they did to save their previous landlord money are now left to the landlord to handle. Perhaps heats are turned up a little too high.

It is hard to really know the motives of the landlords. It could be they are hardnosed businesspeople who will run this rental complex like a generic high turnover unit. This is their prerogative of course but this comes at a much higher operations cost than would a stable lot of tenants, either through higher turnover or greater wear and tear. To be fair, some landlords charge high rents but offer a high quality service to compensate. Perhaps they paid a high price for the units and the only way to stay cash flow positive is to jack up the rents. I don't know anything specific about the actual owners in this case.

All’s Fair

The third thing to note about this sad affair is that, while the Act’s arbitrator has decided for a marked rent increase, the court of public opinion is much more divided and angry. Rent control and the treatment of seniors (of which some of the tenants happen to be) seem to trigger an emotional response. I am sure the landlords have faced added stress and complications by having these tenants go to the local press. Tenants certainly played the sympathy card well, given the high level of media coverage.

I am sure readers here have an opinion on this case. It is a complex issue and I have sympathies for both sides of which I will not expand upon much. But I will say that it’s completely fair game for the tenants to have brought in the media who effectively sensationalised this story. Like it or not, a free press is, well, free to report on these stories as they see fit.

Actually, it was a decent strategic and tactical move on the part of the tenants, worthy of careful study in business schools. The landlords, while likely pissed off, should not be too surprised they are receiving such attention, as should any businessperson trying to make money through uncomfortable situations such as this one. Par for the course, guys. I doubt, though, these landlords really thought media coverage likely before they bought.

In the end, the landlords received a partial increase in rents for some of the units, to be phased in over a course of several months. But with them having an entire building of pissed off (and possibly high quality) tenants who can make the landlord's life miserable or move out and be replaced with what could well be higher maintenance and riskier tenants, I wonder if their investment is really going to be a good one in the end. It could also be that these rents were just too low.

Saturday, April 18, 2009

The Spring Bounce

We have been hearing reports about Vancouver house prices stabilising in recent months. Are we at bottom or is this a bear market rally, the so-called "spring bounce"? The Pope put up an interesting graph of Sacramento house prices, where there were two such spring bounces before a regression to more price drops. It appears there are other markets that have exhibited a temporary bounce up in sales before returning to falling prices. Below is a graph of some notable American markets' prices:

Cities with some semblance of a bounce include: Seattle, Portland, San Diego, and San Francisco. Cities that did not have a spring bounce include: Miami and Phoenix. Note Vancouver's bounce looks sharp because we are using the benchmark where the other cities use the Case-Shiller HPI, which averages 3 months' worth of data.

There is no credible evidence to make me believe we are NOT witnessing a "spring bounce". The fundamentals point to lower prices and, while Vancouver may not see as meteoric a fall as did Miami, I am expecting more price weakness in the second half of 2009.

Thursday, April 16, 2009

RBC Housing Affordability

RBC has published their quarterly assessment of nationwide housing affordability and here it is.

This is what they have to say about BC.

Housing markets remain under heavy downward pressure in British Columbia. With the sharp rise in unemployment since last summer worrying households in the province, demand is generally weak and falls well short of available supply. This is sustaining the declining trend in prices for both existing and new homes. Nonetheless, there are signs that the situation might be close to stabilizing. After falling precipitously since hitting nearly record high levels in 2007, sales of existing homes appeared to have found a floor in the closing months of 2008 and the first two in 2009 – although at historically depressed levels. This, in part, might reflect a notable improvement in affordability, which removes a thorn in the B.C. markets’ side that emerged in the aftermath of the boom. From the end of 2007 to the end of 2008, RBC’s affordability measures in the province improved between 4.1 and 6.3 percentage points, depending on the housing type. Still, the restoration process has much further to go as measures remain significantly worse than historical averages.

Yes, they are correct, we are a long way from any kind of 'affordable' level.

This is what they have to say about Vancouver:

To say that things continue to be tough in the Vancouver housing market would be an understatement. A small up-tick in existing home sales since December has brought only cold comfort after the collapse of more than 60% in the preceding 15 months. Prices are down 4% to 9% from peak – or more than 30% if no account is made for the changing mix of housing types being sold – and still sliding. Pricing power remains firmly in the hands of buyers with the sales-to-new listings ratio at historical lows, indicating an enormous imbalance and suggesting that prices will likely correct further in the months ahead. Despite the price decline to date and the break on mortgage rates in the past year, the cost of homeownership in Vancouver is still exorbitant both in absolute terms and relative to income or rent. As families in the area worry increasingly about dwindling job prospects, poor affordability will continue to weigh on the market.

Time will tell of course but I agree that Vancouver prices are exorbitant and that we are not even close to the bottom.

Sunday, April 12, 2009

The Data Deficit in Real Estate - The Globe and Mail takes on the CMHC

From the Globe and Mail:

Transparency would be an asset of great value to Canada as the country faces perplexing policy issues on home ownership and mortgage lending in the current recession. As things stand, however, the severity of the problems in question is largely a matter of anecdote and guesswork.
If financial institutions and other housing market participants supplied data to Statistics Canada, these issues could be lucidly discussed and resolved.

Canadians may congratulate themselves on a less troubled real estate market than that in the United States, but how much less troubled is unknown. The world economic crisis was triggered by inflated housing prices in the United States, but Canada and other countries had a housing bubble, too.

The number of subprime Canadian mortgage borrowers, for example, remains a mystery, as is the number of people who have lost their homes by power of sale and foreclosure; in the U.S., the equivalent figure is a matter of clear public record on a continuing basis.

Because of the credit crunch, some significant number of Canadians who are successfully meeting their mortgage payments, though their credit ratings show relatively high risk, are in danger of losing their homes when their mortgages come up for renewal. The lenders that accepted their mortgage applications in the first place would have to advance new cash, because they sold or “securitized” the original mortgage debts. Some of these non-bank lenders will now be unable to fund what amounts to a new loan, under present economic conditions. Moreover, the value of the security – the homes – has fallen.

From $3-billion to $5-billion in mortgages and as many as 25,000 borrowers may be affected, but these are only estimates.

Similarly, the question of whether mortgage-loan insurers should compete on a level playing field with respect to the federal government's complex guarantees in favour of insured mortgage lenders is obscured by the lack of information on its implications. Currently, the insurance policies issued by Canada Mortgage and Housing Corp., a Crown corporation, are 100-per-cent guaranteed, while the policies of private insurers, now principally Genworth Financial Inc., are 90-per-cent covered.

In July, the federal government wisely cracked down on mortgages with no down payments and long, 40-year amortization periods. But, again, the effects of the risky mortgages previously backed are unknown.

The government is rightly trying to keep credit flowing, in housing as in other sectors. It would greatly help if the size of the problem could be discerned.

Wednesday, April 08, 2009

March 2009 Housing Starts

From the Vancouver Sun:

Housing starts across British Columbia remained depressed in the first quarter of 2009, falling almost 70 per cent compared with the same quarter of 2008, Canada Mortgage and Housing Corp. reported Wednesday.

While housing starts ticked up slightly in March on a national basis, builders in B.C. started work on 2,517 new homes in the first three months compared with 8,532 in 2008.

"Developers and homebuilders in B.C. are starting fewer new homes in response to a well-supplied resale market and weaker housing demand," Carol Frketich, Canada Mortgage and Housing's regional economist for B.C., said in a news release.

The declines in starts ranged from almost 93 per cent in Kelowna, where builders started on 72 new homes compared with 985 in the first quarter last year, to 31 per cent in Nanaimo, where builders started on 170 new homes vs. 247 in the same months a year ago.

And the pace of new-housing construction slipped in March to a pace that would see builders across urban B.C. start work on 10,000 units in 2009, compared with a pace of 12,000 units seen in February.

In the Lower Mainland, Metro Vancouver saw starts fall by two-thirds, 1,829 units compared with 5,131 in the first quarter of 2008.

Across Metro Vancouver, West Vancouver saw the steepest drop in the first quarter at 92 per cent, with the Tri-Cities and Surrey not far behind at 91 per cent.

Delta was the only municipality to see an increase in housing starts. Builders there started work on 81 new housing units, an increase of 55 per cent in the first quarter from a year ago.

"The slowing housing starts trend that began in the last part of 2008 will continue," Robyn Adamache, Canada Mortgage and Housing's senior analyst for Metro Vancouver, said in a news release, also citing well-supplied resale markets and a growing inventory of unsold new homes as the reasons builders are holding off on new development.

Across Canada, home construction rose unexpectedly in March, led by Ontario and Quebec, Canada Mortgage and Housing Corporation said Wednesday.

There were 154,700 housing starts on an annualized basis during the month, up from a revised 136,100 units in February, the government agency said.

Many economists had expected housing starts to dip to 130,000 units in March.

“Higher multiple starts in Ontario and Quebec were the main contributors to the rise in new construction activity in March,” said Bob Dugan, CMHC’s chief economist. “While the multiples segment experienced the largest increase, the overall boost in starts was broad based, encompassing the singles segment as well.”

With files from Canwest News Service
© Copyright (c) The Vancouver Sun

Tuesday, April 07, 2009

City of Vancouver Building Permit Analysis

It was recently reported that "British Columbia saw a surprising 86.5-per-cent surge in the value of building permits issued in February". Jeff Meggs has commented that Vancouver joins construction upturn. Well great. Thanks for Jeff Meggs and ht to Frances Bula for pointing me to the city's permits data. Let's take a closer look!

I am presenting data mostly from 2007 and 2008 as an indication of whether the construction downturn we are hearing about is observable. I will be showing the graphs but not much in the way of quantitative analysis. I urge readers to not read too much into what they see as a "trend"; there are definite statistically significant differences for sure just by using the old eyeball but try not to imagine things not really present that suit the argument you are trying to make.

First let's look at total construction value. 2007 and early 2008 had many spikes.
We next drill into residential permits. Below are the totals. It is evident that 2008 was not a stellar year for total permit value compared to 2007. This is mostly due to large condo projects not starting up.

Here are the graphs for 1-2 dwelling permits and multi-dwelling (i.e. condo) permits:

Interesting that in '08 there was a drop in SFH/duplex permits (in the second half) and what looks to be a statistically significant drop in condos for pretty much the full year. This seems to fit with the news stories we have been hearing in the past year, of new large scale residential projects being cancelled or delayed. The decline in SFH/duplex permits is intriguing.

I plotted the average value per permit of SFH/duplex. Seems rather flat, indicating the construction quality and costs are roughly the same for both 2007 and 2008. I have data from as far back as 2002 showing an increase in SFH construction costs as we have suspected.

Another thing the city tracks is renovation and addition permits. There is nothing to indicate a drop in permits from 2007 to 2008.

An interesting indicator is tracking demolitions. Here we can see fewer demos in the second half of 2008, ticking up in February 2009 (this is likely one or more multi-unit demos; there are only 35 permits for 110 demolitions). There is no discernable trend over the past 7 years.

Overall we can see that the initial claims that Febrary is "picking up the pace" is perhaps a bit too quick because January had zero large condo permit applications and February had one. Late 2008 and 2009 look to be filled with "shot noise" condo permits so the data in terms of % change month over month will be more striking.

The graphs also point towards what the city looks for to rate the construction industry's success. Based upon volume, the city is extremely dependent upon condos; roughly 50% of construction spend goes to condos based upon permits issued. When no new condos sprout up, so does half the city's permit-related construction GDP and, to a lesser degree, a drop in permit revenues for the city.

The other striking observation is where the city's new dwellings are coming from. Around 80% of all dwelling permits issued are for multi-unit constructions, only 20% for SFH and duplex. Vancouver is being built up, literally. Total dwellings do not include unendorsed basement suites. If we assume most SFHs contain 2 basement suites (as is currently the norm), the total number of dwellings attributed to SFH construction increases but so too do the total dwellings produced. City Hall would be well advised to understand where a good third (more recently over half!) of the actual dwellings are being built. Based upon the data there is some credence to Vancouver detached properties having some densification premium, with all the caveats that go along with such assumptions.

Monday, April 06, 2009

Fraser Valley Real Estate - March 2009

The Fraser Valley Real Estate Board released their March statistics package last week and here are some of the highlights:

There were 1006 residential real estate transactions in the Fraser Valley. Sales were up from February but down significantly from previous years.

Active Listings are quite high and will likely rise through the spring and summer.

Months of inventory is at an elevated level of 9.8 and will likely remain at or around this level for the next two months before rising for the remainder of the year.

The FVREB House Price Index, in an uptrend for the past 4 years, has now fallen significantly from peak levels last spring. Even with an uptick the last couple months we are at 2006 price levels. We will see if prices hold up or not this year.

Months of Inventory has a high correlation with price changes and at the current and expected future inventory levels through the remainder of the year we should see continued negative pressure on prices.

Thursday, April 02, 2009

Vancouver Real Estate - March 2009 Charts

Active Listings were basically flat from February. Mostly because sales were quite a bit higher.

Sales rose dramatically from February but are still seasonally low compared to the boom years.

Consequently, the Sales to Listings Ratio improved during March but is still dramatically lower than the boom years.

The number of Months of Inventory is obviously low and is undergoing the expected seasonal variation.

The correlation between the months of inventory and the price changes is tremendously strong.

I expect April and May to be fairly similar to March - flat prices and a relatively stable inventory and sales picture. I fully expect sales to fall in the normal seasonal patter after that which will cause inventory to balloon further. This will raise the number of months of inventory and consequently prices will go down further.

We are 15.8% or $121,979 from the peak detached benchmark values and I don't see that changing too much over the next couple months. Things should get interesting during the late spring and during the summer months.

Greater Vancouver Real Estate - March 2009

From the Real Estate Board of Greater Vancouver.

The Metro Vancouver housing market experienced a movement away from volatility and toward stability to start the spring season. Huh?

Home sales in March 2009 returned to levels witnessed at the beginning of the decade, with 2,265 sales recorded across Metro Vancouver for the month, a 53 per cent increase over February but a 24.4 per cent decrease over March 2008, when 2,997 sales were recorded.
Since 1999, March sales have increased 31 per cent, on average, over the month of February. March 2009 marks the second consecutive month that sales have outperformed the ten-year average for this month-over-month comparison.
Cherry pick much? Grasping at straws?

There's more confidence in the housing market today than we were seeing late last year. Sales activity is rising to more typical levels given the season, and the number of homes being listed for sale is levelling off,. said Scott Russell, president of the Real Estate Board of Greater Vancouver (REBGV). Is real estate really a 'confidence' game?

New residential listings on the MLS® declined 22 per cent in March 2009 to 4,385 compared to March 2008. This is the fifth month in a row that new listings have decreased year-over-year and the third consecutive month where those declines exceeded 20 per cent. WTF?

Despite these trends, total active listings at the end of March 2009 had still reached 14,579, a 19 per cent increase compared to the end of March 2008. .REALTORS® are seeing an increasing level of interest from first-time buyers who are attracted to low interest rates, good supply of housing, greater affordability, and a considerably lower overall cost f servicing a mortgage compared to recent years, Russell said. Yes, housing was and still is overpriced and unaffordable.

Sales of detached properties in March 2009 declined 19.6 per cent to 897 from the 1,116 units sold during the same period in 2008. The benchmark price, as calculated by the MLSLink Housing Price Index®, for detached properties declined 15.1 per cent from March 2008 to $649,342. So, prices are down lots.

Sales of apartment properties declined 28.8 per cent last month to 976, compared to the 1,370 sales in March 2008. The benchmark price of an apartment property declined 13.5 per cent from March 2008 to $337,099. Down as well.

Attached property sales in March 2009 decreased 23.3 per cent to 392, compared with the 511 sales during the same month in 2008. The benchmark price of an attached unit declined 11.2 per cent between March 2008 and 2009 to $420,563. Down too.

Charts to come soon.