Saturday, May 29, 2010

Teranet HPI for March 2010

Monthly price rise of 0.3% in March

Canadian home prices in March were up 11.6% from a year earlier, according to the Teranet-National Bank National Composite House Price Index™. This acceleration from 12-month rises of 7.5% in January and 9.9% in February is attributable to the deflation that was in progress 12 months earlier. This base effect will continue through the results for April, the anniversary of the index bottom. The composite index in March was up 11.7% from that bottom. However, this gain is strongly influenced by Toronto, up 16.3% from April 2009, and Vancouver, up 14.4% from May 2009. In the four other markets surveyed, the rise from the respective troughs is less than 9%.

Month-over-month increases have recently decelerated considerably. The February and March gains of the composite index, at 0.2% and 0.3%, were the smallest in the 11 months since it began reflating. Contributing to the deceleration was a string of three consecutive monthly declines in Calgary, where March prices were down 0.3% from the month before.

Teranet – National Bank National Composite House Price Index™

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Toronto prices were flat in March. Prices were up 0.1% in Ottawa, 0.6% in Montreal and Vancouver and 1.4% in Halifax. The broad slowing of monthly gains is consistent with a general loosening of resale-market conditions across the country. For some months now, homes have been coming on the market faster than they have been selling.

Of the six metropolitan markets surveyed, Calgary remains the only one that has yet to top its pre-recession high. Its prices are down 10.3% from their peak of August 2007.

Teranet – National Bank House Price Index™

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

Metropolitan areaIndex level
March 2010
% change m/m% change y/yFrom troughTrough Date
Calgary157.17-0.3 %2.7 %6.0%June 2009
Halifax124.991.4 %5.8 %6.9%February 2009
Montreal129.220.6 %7.1 %7.2%February 2009
Ottawa122.040.1 %7.9 %8.5%April 2009
Toronto120.940.0 %15.5 %16.3%April 2009
Vancouver152.160.6 %14.4 %14.8%May 2009
National Composite133.470.3 %11.6 %12.0%April 2009

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
Economy & 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.

Tuesday, May 25, 2010

RBC Housing Affordability

The conclusion - Houses are not afforable

British Columbia — Unaffordable and becoming riskier

Rapid price increases are quickly undoing last year’s improvement in affordability in British Columbia. In the first quarter, RBC affordability measures surged between 0.9 and 4.0 percentage points, by far the sharpest deterioration among the provinces. In the past three quarters, the measures reversed between one-third and one-half of their sharp drop in 2008 and early 2009. B.C. housing markets have been on a tear since last summer – with resale activity fully recovering to predownturn levels by the end of 2009 – although some signs of slowing have emerged since the beginning of this year. Nonetheless, the strong price momentum has continued largely unaffected in recent months, returning RBC affordability measures closer to their all-time highs in early 2008. Such poor affordability levels represent an element of risk for the province’s markets.

Risk - in real estate - say it ain't so.

Wednesday, May 19, 2010

I'll Just Sell

In my work, coming face to face with hundreds of people each year, discussing finances and attitudes about finances, I find it very interesting how people approach potential financial pitfalls and opportunities.

One situation I have often come across quite often is the approach toward real estate ownership and financial risk management. The risks I speak of are common to all people: Death, Divorce, and / or a Loss of Income. One of these things can happen unexpectedly at any time and how you prepare for these events is of critical importance in your and your family's long term financial health. Relating specifically to real estate ownership, what happens to the family home when one of these risks turns into reality. How will the mortgage, taxes, maintenance, fees get paid?

Death - a common answer with a couple is "I'll just sell if Bill dies." or "We'll find a way to make it work." - a poor strategy to be sure and one frought with risks. What if the sale price is below what you need? What if it takes 6, 12, 18 months to sell? Where will you live? Will you be in any state to move and uproot in a time of emotional turmoil? Will you have the financial capacity and physical capability to make the necessary payments are do the necessary maintenance? Life insurance is a more appropriate strategy and the costs of that insurance should be added to the monthly budget.

Divorce - this clearly never happens to anyone and certainly isn't going to happen to the couple in front of me! "We'd just sell and split the proceeds." is the typical answer but this is also full of pitfalls. What if one person is emotionally attached to the property? What if one person wants to sell for much more than the other person and there is a stalemate about the sale strategy (very common)? Will you be in any state to move and uproot in a time of emotional turmoil? The key to managing this risk probably lies in the mate selection process but more practical advice would be that couples shouldn't overextend themselves beyond what either of them is comfortable taking on by themselves if it became necessary.

Loss of Income - Job loss or a disability can happen any time as well and despite the loss of income, the bank, strata, government still wants to be paid all at a time of diminished capacity to meet these demands. The common answer here again is "I'll just sell." but again will you be able to sell? Or more appropriately, will you be able to sell it quickly at the price you want? This is really the key question, since you can always sell your home if price isn't a consideration, but it always is. If you lose your job or become disabled, do you have enough of a financial cushion to make all of the necessary payments for 12 - 18 months or longer? Again, disability insurance can be helpful here but it is no solution for job loss. The best advice to to have a large cushion of savings that you can draw on if necessary. Retirement savings withdrawals are possible as long as you commit to replacing the funds as soon as possible so that you do not derail your long term retirement plans.

My impression is that people are very comfortable with the fact that in the past few years real estate has been an asset with good liquidity and rising prices so these concerns seem unfounded when coming from their financial planner, especially when their friends and family are able to sell their houses quickly and for more than they were asking. The question is, was that normal? Should we expect a much different market in the future with dramatic implications for personal risk management? Many people wonder how they can build up an emergency fund, savings or pay insurance premiums when they are stretched to the limit with mortgage payments. My advice is that you should get out of that situation as fast as possible because you may not be able to sell at the price you need.

Wednesday, May 12, 2010

Starts / Completions per New Person

Relating to the conversation in the previous post comments, here is a chart showing the ratio of housing starts and completions to new residents.

Sunday, May 09, 2010

Where's that population boom?

We have all heard from the pumpers that one of the reasons for the great boom in housing prices in the 2000s was the population explosion in BC.

Those who remember my old blog will recall that booming population growth was shown to be nothing more than a myth. Population growth has indeed been positive. But it is very small relative to what was seen previously in BC.

The house price boom has been around about 10 years now. So, let's look at the 10-year population growth rate for BC.

See that little hook at the far right of the chart? That's as good as it gets. No boom.

To make this more stark, let's rank the decades.

Ouch. The 2000s are last among the previous 5 decades. The worst decade for population growth in 50 years. Nice population boom.

Now let's break that down even further into 5-year time periods.

There you have it. The last two 5 year periods are the worst two in the last 45 years. And 1995-1999 is in 3rd last place, to boot.

We had unprecedented construction levels and paltry population growth. I wonder who will be living in all those houses?

Wednesday, May 05, 2010

TD Bank Predicting House Prices to Drop

From TD Economics.

Our existing home sales and average price forecast for 2010 is largely unchanged since December 2009. We still expect 475K transactions to take place, with an average annual price
nearing $350K, an increase of 9% over 2009.

However, this hides an underlying shift occurring over the course of this year. While we anticipated sales and prices to be strong in the first half and to cool in the second half, we now expect this contrast between the two halves will be sharper.

A surprisingly robust economic recovery provides some offset in the form of higher employment and income, but a combination of factors suggests a weaker handoff to 2011 than previously expected.

One crucial factor is the supply side response (listings) to higher home prices. While it was slow to appear, it is now stronger than had been expected. Housing starts have also been slightly higher than anticipated at 200K units in Q1/2010.

While we previously expected the average home price to gain a modest 1.6% in 2011 (stagnating in real, or inflation-adjusted terms), we now expect a modest pullback of 2.7% at the national level, with 7 out of 10 provinces experiencing lower prices.

Tuesday, May 04, 2010

Fraser Valley Real Estate - April 2010

Here are the charts:

Active listings are increasing at the same pace as 2008.

Sales are still brisk but May could mark a turning point as it did in 2008.

Months of inventory is at the high side of normal and looks to be matching 2008. It will take a drop in sales to get to the extremely elevated levels of market distress we saw in 2008.

Correlation between MOI and price changes is extremely robust and we should be looking for price decreases through the summer if normal seasonal patterns hold up.

Monday, May 03, 2010

Comparing US Prices at peak to Canada Today

It's always refreshing to see new data to analyse but it's equally as refreshing to see existing data analysed in a different way. Over at poster vibe performed some analysis comparing the price-income ratios in Canada today to the US in 2006, around the peak of their prices [jesse: I inserted an updated graph]:

"...there was some discussion about whether Canada is in a real estate bubble. Everyone pretty much agrees about Vancouver, but here are a couple of points that were made about the national scene:

1. It is reasonable to claim that there is not a housing bubble in Canada because only certain areas are over inflated.
2. Vancouver's very high prices skew the national average and cause Canada to look worse than it really is.

One thing I think we can all agree on is that the US did have a housing bubble. Well I put together a spreadsheet that I feel shows that affordability is about as bad across Canada as it was in the US at their peak. It also shows that Vancouver is not skewing our national data any more than the most overpriced cities in the US were skewing their data. In order to measure affordability I used house price to personal income ratios. I compared the 20 cities used in the Case Shiller Housing Index to the 6 cities used in the Teranet Housing Index. The US data is from 2006 while the Canadian data is from 2009.

I think the following graph most clearly illustrates my point:

Vancouver is the only Canadian city with a ratio over 9, while the US had 3: LA, San Fran and San Diego. Toronto is the only Canadian city with a ratio between 5 and 9, the US had 9 in this range. The under 5 range looks bigger for Canada but we have more population covered by our index than they do by theirs. The important thing is that the percentage of each nations population living in cities with elevated ratios is similar.

The distribution and average ratios for both countries are almost identical.
(Highlighting above is mine.)

Almost identical.

These data would be less of a concern if sales volume were low but, based on the volume of sales in the past several years, we know a not-insignificant portion of the population have bought at high prices. In addition we know the make-up of personal debt in Canada has been trending into the "unsustainable" territory, throwing into serious question the argument that future income gains justify high prices, even in part.

Gird yer loins!