The following is from BMO’s Focus research note released yesterday.
You can read the entire report referred to in the article below, here (“A Tale of Three Canadian Housing Markets”)
The latest housing data show continued divergence in three major Canadian cities from the soft-landing path (of moderating sales and steadying prices) that we expect for most regions, a view first highlighted in the June 10, 2011 Focus Feature “A Tale of Three Canadian Housing Markets”.
In September, Vancouver’s sales decline deepened to -33% y/y, while active listings jumped 14%. With a full year’s worth of supply on the market (double the norm), buyers have gained the upper hand, bidding prices 0.8% lower in the past year and 2.3% lower in the past three months (according to the benchmark Home Price Index).
In sharp contrast, Calgary home sellers are enjoying double-digit sales gains (11% y/y), less competition (with active listings down 23%), and steady price increases (6.8%).
It’s a more nuanced story further east, however, where Toronto sellers are facing double-digit sales declines (for both detached homes and condos), albeit from high levels. However, despite weaker demand and a recent surge in listings, resale inventories remain tight, especially in the detached market. As a result, house price growth remains brisk at 5.7% y/y, though it has moderated from the 8% clip earlier this year. Detached home prices rose 7% in September, while condo prices were up a more modest 1.7%.
Elevated household debts and tighter mortgage rules are cooling markets across Canada. But what explains the very weak sales in Vancouver and, more recently, in Toronto, compared with the galloping gains in Calgary, aside from relative economic strength, are valuations and affordability.
Vancouver’s benchmark house price of $606,000 is about 9-times median family income, while Toronto’s $458,000 price is just over 6-times income. By contrast, a typical home in Calgary costs just $383,000 or 4.3-times income—and family incomes are over 20% higher than in the other two cities and growing faster. As a result, mortgage payments on a typical home consume a relatively
modest 25% of family gross income in Calgary, less than the national average (29%), and well below the stressful 38% in Toronto and gut-wrenching 52% in Vancouver.
Going forward, house prices should continue to rise in Calgary, fall further in Vancouver, and soften in Toronto, even as most other regions see little movement.