House Prices Canada: Calgary, Newfoundland Lead Growth; Prices Down In Montreal, Maritimes
“Builders reported that higher material and labour costs as well as market conditions were the main reasons for higher prices,” Statistics Canada said.
Canada April New House Price Index Report
The following is the text of the new house price index report for April released by Statistics Canada.
The New Housing Price Index (NHPI) rose 0.2% in April, following a 0.1% increase in March and similar gains over the past 12 months.
For the third consecutive month, Calgary was the top contributor to the national advance, as prices for new homes rose 0.5% in April. Builders reported that higher material and labour costs as well as market conditions were the main reasons for higher prices.
The largest monthly price advance occurred in St. John’s (+1.0%), following eight consecutive months of little or no price change. Builders reported higher material and labour costs as the reason for the rise in that region. This was the largest price movement in St. John’s since November 2010, when new housing prices rose 4.3%. Since then, prices have been relatively flat, despite a few modest gains over the summer of 2012.
“This was the largest price movement in St. John’s since November 2010, when new housing prices rose 4.3 per cent. Since then, prices have been relatively flat, despite a few modest gains over the summer of 2012.”
Hamilton followed closely with prices for new homes rising by 0.8% in April. Builders cited market conditions as the reason for the advance, the largest in that region since October 2012.
Prices rose 0.6 per cent in Winnipeg and 0.3 per cent in Saskatoon and 0.1 per cent higher in Quebec City, Toronto-Oshawa, Ottawa-Gatineau, Vancouver and Victoria.
Prices were 0.1 per cent lower from March to April in Montreal and the region including the New Brunswick cities of Saint John, Fredericton and Moncton.
“Builders in the region of Saint John, Fredericton and Moncton reported lower prices as a result of market conditions, while builders in Montréal lowered prices to finalize sales,” Statistics Canada said.
New housing prices were also up in Winnipeg (+0.6%) and Saskatoon (+0.3%). This was the second monthly increase in a row for Saskatoon, following 10 months of little or no price movement.
In April, prices decreased 0.1% in the combined metropolitan region of Saint John, Fredericton and Moncton, as well as in Montréal.
Builders in the region of Saint John, Fredericton and Moncton reported lower prices as a result of market conditions, while builders in Montréal lowered prices to finalize sales.
Prices were unchanged in 5 of the 21 metropolitan regions surveyed.
On a year-over-year basis, the NHPI rose 2.0% in the 12 months to April, following a similar increase the previous month.
The main contributor to the advance was the combined region of Toronto and Oshawa, where the year-over-year increase in contractors’ selling prices was 2.9%. Annual price increases in this region have been slowing since the start of 2013, following steady growth throughout 2011 and the early part of 2012.
For the fifth consecutive month, Winnipeg recorded the largest year-over-year price movement in Canada. Prices were up 5.5% in April following a 5.1% advance in March.
Other significant year-over-year increases occurred in Calgary (+4.7%), Regina (+3.1%) and Hamilton (+2.8%). In Calgary, annual price gains have been generally accelerating throughout 2012 and 2013.
Builders reported that prices were unchanged in five regions surveyed — Halifax and four regional markets in Ontario including Kitchener-Cambridge-Waterloo.
On a year-over-year basis, the national index was up 2.0 per cent in April following a similar increase in March. The biggest contributor to the increase over the last year has been in the Toronto-Oshawa region, but the 12-month increase there in April was just 2.9 per cent.
Several smaller markets saw larger 12-month increases in April: Winnipeg’s gain was 5.5 per cent, the highest in the country for the fifth consecutive month. Calgary’s advanced 4.7 per cent and Regina was up 3.1 per cent
Only Victoria (down 1.5 per cent) and Vancouver (down 0.6 per cent) showed 12-month declines among the 21 markets surveyed.
Among the 21 metropolitan regions surveyed, only Victoria (-1.5%) and Vancouver (-0.6%) posted 12-month price declines in April, continuing a long stretch of annual decreases in the two western-most regions.
Larry McDonald of The Globe and Mail looks at the situation critically … or with a pinch of salt ?
Risks are undeniably elevated in the Canadian housing market with prices so high relative to household incomes. Many housing bears assume this overvaluation entails a hard landing but I’m not convinced it’s inevitable at the national level. One reason – which seems mostly overlooked in the debate – is that Canadian policymakers will be doing their utmost to avert such an outcome.
In a sense, Canada is fortunate to be facing the spectre of a housing bust after other countries have had theirs. Before 2008, it was generally believed house prices could never fall by much. Policymakers now know better and will be a lot more proactive in preventing a collapse.
As CNBC.com senior editor John Carney has noted: “There may be advantages, however, to coming last to the crash party. They [Canada] have seen how this works in the U.S. and Europe. They may be able to avoid some of our mistakes.”
Canadian policymakers do have the levers to affect outcomes. One is the regulatory framework for housing, which can be amended in various ways to reconfigure housing demand and supply to the extent required. Indeed, Finance Minister Jim Flaherty has tightened mortgage lending several times over the past two years to slow down price increases and give household incomes time to catch up.
Other regulatory changes include tagging Canadian banks with “too big to fail” provisions that require them to put aside more capital. Then there are the “bail-in” provisions that specify when a troubled bank will recapitalize by converting its senior unsecured debt and other liabilities into equity.
In addition to these pre-emptive steps, Canadian policymakers have no doubt given some thought to dealing with the risk that the soft landing could go off the rails. It’s hard to imagine they would allow the housing sector to destabilize the economy and financial system like it did in the U.S. and other countries.
Responses could range from cutting the Bank of Canada rate to relaxing regulatory restrictions on housing demand. Housing bears might complain about such measures but they would allow Canada to reposition back to a soft landing. That would be more preferable than inflicting the trauma that befell the countries hit with housing meltdowns.
Larry MacDonald is a retired economist who manages his own portfolio and writes on investing topics. He tweets at @Larry_MacDonald
Meanwhile, the heat is back in action …
Pace of Canadian housing starts up in May
Home construction in Canada staged a surprising spring resurgence in May, particularly in the seemingly overbuilt condominium market, defying expectations of a slowdown and even deep correction.
The latest housing starts data from Canada Mortgage and Housing Corp. showed building rose to an annualized 200,178 units last month — with condos leading the way — about 20,000 over economists’ expectations and almost 25,000 above the April number.
The total is also above the 170,000 units analysts consider the fundamental growth in housing formation in Canada, or the rate by which demand for new homes are in line with demographic factors.
But it appears to support last week’s better-than-expected employment report that estimated 43,000 new jobs had been created in the construction industry last month.
“It’s defying gravity,” said Benjamin Tal, deputy chief economist with CIBC World Markets. “We have no business being at 200,000 at this point … but the indications I’m getting is that we are slowing down and I do believe if you look at the next six to eight months, it will not be as strong.”
Other analysts also called the expansion, particularly in the condominium market, unsustainable.
“May’s sharp jump in the pace of new home construction is unlikely to be sustained,” TD Bank economist Dina Ignjatovic said.
“Indeed, slower price growth in the housing market could lead to lower homebuilding activity in the coming quarters. Moreover, the overbuilding that has taken place over the last ten years could lead to new home construction falling below this demographic need for a period of time.”
That is also the view of CMHC analyst Mathieu Laberge, who noted the six-month moving average, or the trend in starts, remained largely unchanged in May at a more sustainable 182,756 annualized.
Still, predictions of a pop in the Canadian housing bubble have yet to appear.
The market did noticeably fall from dizzying heights following last July’s changes to regulations that made mortgages more difficult and more costly to obtain for first-time buyers. The cooling was most noticeable in starts and in sales, which are off about 10 per cent from last year. But prices have remained stubbornly immune.
Last week, the Paris-based OECD cited Canada as one of the most concerning markets in the world, one of three in which despite their elevated levels, prices are still rising.
But Tal, and many others, believe with sales falling, prices will also eventually move lower.
Barring that, he says the superintendent of financial institutions may have no choice but to follow through on its hint that it might lessen the amortization period from 30 to 25 years for uninsured mortgages — those with more than 20 per cent downpayment — bringing those in line with CMHC-insured borrowing.
The Bank of Canada and the federal government have long worried about Canada’s housing market continuing to expand beyond fundamental levels because of the potential for a sudden and steep crash once interest rates start to rise, which would not only put many homeowners’ finances in jeopardy, but could also sideswipe the economy.
One encouraging element in the May numbers — for those who subscribe to the soft landing scenario — is that most of the gains came in the notoriously volatile condo market, which registered a 22.2 per cent jump in starts to 114,346 units annualized. Single urban starts rose only three per cent to 62,888 units.
In actual starts, there were an estimated 18,301 actual starts last month which would equate to a seasonally adjusted annual rate of 200,178 starts.
Urban starts increased 14.6 per cent in May to 177,234 units, led by gains in Atlantic Canada and Ontario, while the Prairies saw little change and British Columbia and Quebec decreased.
Meanwhile, the war goes on …
The Chase: long-distance lovers win a bidding war on the perfect house near Queen and Broadview
Things are really happening here in Canada, eh ?