National Bank: Decreased Affordability Denting House Prices

Calgary repeat sale price growth once again led Canada in November, increasing 5.9% year-over-year according to National Bank.   Between October and November however, prices were down –0.3%

The Teranet–National Bank National Composite House Price Index™ was down 0.1% from the month before, essentially reversing the October gain.  The 0.1% monthly decline of the composite index was the fourth November decline in a row.

This is where I have an issue with National Bank’s commentary.  It reads:

Be it as it may, since November prices have on average gained 0.1% from the month before over the 15 years of data index collection, this year’s retreat does not signal a buoying market.

The Composite Index exhibits about no growth over the last three months … All in all, it looks that the recent rise in mortgage rates, which has decreased affordability to levels not seen since 2008 is taking a dent on house prices…In our view, there is no significant upside in prices at the national level in the upcoming months.”

There are two main reasons why it’s too early for National Bank to be making the above assumptions:

1. Last November, 10/11 markets had a monthly decline and National Bank drew comparisons to the recession.   We all know how the market performed in 2013 which shows how much stock should be put on monthly variations.  By comparison, this November had 7/11 markets down m/m.

2.  This particular index is not seasonally adjusted and we know just how seasonal real estate is.  Prices rise in the spring and dip again towards the  fall/winter.     It would be just as imprudent to take a spring month with rising prices and attempt to extrapolate continued gains from there.    If there are continued m/m declines a few months into 2014, then we have something to talk about.

Bottom line is that prices were up on a year-over-year basis for every city tracked save for Victoria.

Would you believe that Vancouver prices reached a new record in November?   I only have a passing interest in Vancouver but find the record high amusing since the city was supposedly in crash mode according to some pundits.

HPI - November 2013

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