Monthly Archives: November 2011

House Price Index (HPI): September 2011

Canadian home prices in September were flat from the previous month (+0.0%), according to the Teranet–National Bank National Composite House Price Index™. The plateau followed 9 consecutive monthly increases.   Year-over-year prices in Canada were up +7.4% or +6.5%,  depending if you’re looking at the original composite 6 index or the newer composite 11.

Several cities tracked by the index also experienced their first m/m decline in many months:

  • Ottawa-Gatineau (ending a run of seven straight monthly gains)
  • Vancouver (ending a run of 11 straight gains)
  • Montreal (first decline in 10 months)
  • Edmonton (first decline in seven months, and the only city tracked that is down from the previous year)

In four markets, prices were up from the month before – 0.6% in Winnipeg (eighth monthly increase in a row), 0.5% in Hamilton and Toronto (seventh increase in a row for both) and 0.2% in Victoria.

Calgary experienced the first decline in six month in September, dropping -0.8% from the previous month.  Year-over-year, house prices in Calgary were up +2.2%

The Economist: Canadian Real Estate “Uncomfortably Overvalued”

An article from the latest issue of the The Economist details how 4 years after house prices peaked in much of the world, housing remains over-valued when compared to its long-run relationship with housing rents and income per person.

The article states:

Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom. Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark.

But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued…

The Economist tracks 2 measures:

  • Price-to-income ratio
  • Price-to-rent ratio

If both of these measures are well above their long-term average, which they have calculated since 1975 for most countries, this could signal that property is overvalued.

Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble.

To read the entire article, click here

To compare global housing data over time with their interactive house-price tool, click here

Source: The Economist

RBC: Housing Trends & Affordability Q3 2011

The European sovereign-debt crisis in the past several months has provided some benefits to the Canadian housing market in the form of lower interest rates, according to RBC’s Housing Trends and Affordability report out today.

Fixed mortgage rates (on a five-year, posted basis) eased to 5.3% in the Q3 of 2011 from an average of 5.6% in Q2 of this year, which ran ran counter to expectations of generally rising interest rates earlier this summer.

Below is the excerpt regarding Calgary:

Regaining momentum

The good news is that the Calgary market regained some momentum in the third quarter after somewhat of a lull in the second quarter. Both home resales and prices picked up again for most housing categories in the area. The Calgary market has been invigorated by strengthening local employment where more than 25,000 net new jobs (a 3.7% increase) have been created so far this year.

The flipside of renewed momentum, however, has been an erosion of affordability. The RBC affordability measures deteriorated for most housing types in the third quarter, rising between 0.2 and 0.5 percentage points. Two-storey homes were an exception, as the measure edged lower by 0.3 percentage points. Despite the modest deterioration that took place in the latest period, affordability remains quite attractive in Calgary, ranking at some of the better levels among Canada’s largest cities.

You can read the entire report here

Alberta Wages Up Y/Y, Down M/M in September

Alberta still had the highest weekly average earnings among the provinces at $1,042.77 according to Statistics Canada’s September 2011 report. Year over year, average earnings in Alberta had increased 3.8%, but decreased 0.1% from the previous month.

Canada-wide, the figures weren’t very positive with wage increases actually falling behind the inflation rate meaning that in real terms wages are actually dropping. On a year-over-year basis, average weekly earnings rose 1.1%, the smallest increase since November 2009. While average hours worked per week can influence growth in year-over-year earnings, the average work week was unchanged in the 12 months to September at 33.0 hours

Year-over-year change in average weekly earnings by province, September 2010 to September 2011 Source: Statistics Canada

Source: Statistics Canada (Click to enlarge image)

November 1-21, 2011 Calgary Real Estate Stats

As has been the case for the majority of the year, this month’s activity has been a blend between 2009 and 2010’s levels – not fully recovered, but an improvement from the previous year.

In the first 3 weeks of November there were 684 single family home sales, an increase of 9.44% year-over-year. Active inventory is trending slightly lower than this time last year. On November 21, 2010 there were 4,299 active listings compared to 4,117 yesterday. Even so, the inventory absorption rate for the last 30 days sits at 4.4 months which is a “Buyer’s Market.”

SFH weekly sales (click to enlarge image)

SFH Pending Sales (click to enlarge image)

Metro-Calgary Condo Statistics

Condo weekly sales (click to enlarge image)

Condo Pending Sales (click to enlarge image)

$4.5M Rideau Park Home Highest Sale Price of 2011

Yesterday, a brand new home in Rideau Park sold for $4,525,000 which is the priciest MLS® sale of 2011 year-to-date for Calgary.

Built by City Core Developments the 6,165 square foot, 5 bedroom home is located on the banks of the Elbow River. According to the MLS® listing it boasts:

Gourmet kitchen, 48″ Wolf range, Sub-Zero, pantry, stunning cabinetry, counters and large island complete the well appointed kitchen, perfect for entertaining large groups. The deck has a fully serviced outdoor kitchen & beautiful outdoor fireplace. Master bedroom & spacious 5 pc ensuite with Jacuzzi, 2 walk-in closets and a private balcony overlooking the river. 4 fireplaces, 5 bedrooms & 5 ensuites, wine cellar, media/rec. room & bar, rubber floored gym

The home was listed with RE/MAX REAL ESTATE (CENTRAL)

You can view pics of the home here – but they were taken while the property was still under construction.

The record for the most expensive home sold in Calgary on MLS® was set in 2009 when former Calgary Flames goaltender Mike Vernon sold for $10.3M in Elbow Park.

CIBC: House Prices in Canada Are Over-Shooting, But No Crash

Another research note out today, this one by CIBC, states that “relative to rent, income and demographics, house prices in Canada are over-shooting.”  CIBC explains that it doesn`t necessarily mean that a crash is in the works, however a 10% price drop is probable.

A violent market correction needs a trigger such as the sub-prime crisis, which ignited the US real estate meltdown, or abnormally high interest rates as was the case during the 1991 property crash in Canada. That is not on the horizon this time around. The Bank of Canada is very clear about its intention to move slowly, with the first rate hike not expected before late 2012. As well, any objective assessment of the quality of the existing mortgage portfolio in Canada reveals a relatively balanced mortgage market with a small segment of marginal borrowers.

Accordingly, while we do not see house prices crashing, we do believe that the housing market in Canada will stagnate in the coming year or two. Further out, the most likely scenario is that the eventual increase in interest rates will lead to a modest decline in prices (probably in the magnitude of 10%). But given relatively modest rate hikes and the current balanced affordability position, the more significant adjustment will be in housing market fundamentals that are likely to catch up with prices in the coming years — paving the way for a healthier housing market later in the decade.

Indeed a flattening in house prices in the next year or so is a necessary condition for such a soft lending scenario. If the pace of house price increases accelerates during that period, then twelve months from now the likelihood of a violent price correction will be higher than it is now.

You can read the entire research note here