Canadian Home Prices Continued Their Recovery in December: CREA
Canadian home prices continued their recovery in December, according to the latest data from the Canadian Real Estate Association (CREA).
Benchmark prices are up 3.4% from December 2018 to $643,700 in the 19 markets CREA tracks, while the average home price is up 9.6% year-over-year to $517,000. (The benchmark price is considered a more accurate reflection of the “typical” home price as it excludes the most and least expensive properties and focuses on key markets.)
“The momentum for home price gains picked up as last year came to a close,” said Gregory Klump, CREA’s chief economist. “If the recent past is a prelude, then price trends in British Columbia, the GTA, Ottawa and Montreal look set to lift the national result this year, despite the continuation of a weak pricing environment among housing markets across the Prairie region.”
That split between Ontario and the Prairies has been the case for over a year. Ontario properties have moved from strength to strength, with overflow from Toronto spilling into small urban centres in the province, while prices for properties in the Prairies have consistently dropped for over five years, since oil went bust.
Sales were down slightly from November but jumped 22.7% year-over-year due to a relatively quiet month for sales last year. While transactions have rebounded from the six-year low reached in February 2019, they’re still 7% below the peak recorded in 2016 and 2017. Sales are strong in the Lower Mainland of British Columbia, Calgary and Montreal, but sluggish in Toronto and Ottawa.
CREA continues to blame the mortgage stress test introduced in 2018 for preventing a full market recovery in terms of sales, but tighter mortgage rules are in place to protect the economy as a whole, and to ensure that only those who can comfortably afford a home can do so.
In theory, taking prospective buyers out of the market because of the stress test would result in lower prices—and, indeed, home prices for expensive detached houses did grow at a much slower rate over the last couple of years. But prices have now picked right back up, likely because supply is simply so low. So, while demand has shrunk slightly, supply has taken a nosedive.
Active listings are at a 12-year low and there are just 4.2 months of inventory left—the lowest level since the summer of 2007 and far below the long-term average of 4.3 months. That means that if sales continue at their current pace, all available homes will be gone in 4.2 months. Unless sellers start listing their homes on the market en masse, prospective buyers are likely to see increased competition, higher prices, pressure to remove conditions from their offers and are unlikely to get their first or second choice of property.
The national sales-to-new-listings ratio, a metric that measures competitiveness in the markets, rose to 66.9% in December. That’s the highest ratio since the spring of 2004 and far above the long-term average of 53.7%. Sellers have the upper hand when the ratio is this high.
Of course, each market is different. Vancouver is still balanced between buyers and sellers, but Ontario, Quebec and the Maritime provinces are tilted towards sellers. In contrast, the Prairies are solidly buyer markets, as they have ample choice of properties to choose from.
What this all means is, unless we can get more supply on the market, home prices will almost certainly rise in 2020.
Check out the infographic below for more information on this month’s real estate situation:
