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GTA housing market largely followed its seasonal pattern in 2010
Here is the final update for 2010
Monthly Prices followed the seasonal pattern rather religiously!
Source: Toronto Real-Estate Board
Sales was not different, although the overall level of sales (~86k) was less than 2009 & 2007.
Source: Toronto Real-Estate Board
I will admit that through 2010, my housing related posts had an inherent negative bias… I will end the 2010 housing post on a more positive note at least by one measure.
Look at the long-term chart of house price trends in GTA… the 5-year compound average growth rate (CAGR) in GTA house prices is 5.22%… in the long term, this rate should equal the growth rate in the GTA economy, personal income and all other products and services.
Source: Toronto Real-Estate Board
Now I don’t have hard data for GTA economic indicators and I doubt the GTA economy grew by >5% annually in the last 5 years…. BUT consider this: Canada’s economy grew 3.55% annually from 2005-2009 and for the same period, GTA house prices rose 4.16% annually…
Do I still think GTA house prices are over the top, perhaps not so much given that GTA’s economy most likely outpaces the rest of Canada (likely due to increasing immigrants)… yes, there are other factors that affect house prices but in the long run… all growth rates should converge!
Let’s hope 2011 is slower so I can buy a house 😉 !
GTA Housing Update, Sales & Average Price Seasonal pattern
I am shocked to see that the average single family house price for the first half of October 2010 is $444644! This is only two thousand dollars away from the all-time high of $446593 reached in May 2010… I thought house prices peaked in Spring and stayed flat or moved down for the rest of the seasons… but the chart below says something different
I will summarize the above chart to decide when house prices peak within a calendar year:
In which month do house prices peak in a year?
| 2006 | 2007 | 2008 | 2009 | 2010 |
| April | Oct | April | Oct | May |
And what about Sales activity?
| 2006 | 2007 | 2008 | 2009 | 2010 |
| May | May | May | June | April |
The above chart is based on the average price as reported by the Toronto Real-Estate Board… the following chart is based on the Teranet House Price Index and it tells a much different story… although I wouldn’t interpret the index data in the same way as raw price data mostly because of the index methodology.
| 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
| Dec | Dec | Dec | Dec | Dec | Dec | Dec | Aug | Dec | Aug | Dec | Jul |
It is clearly towards the end of the year and that is obviously due to the inherent inflation!
Update: Forgot to include seasonal sales pattern from Teranet House Price Index data… Sales peak in the summer months of Jun-Aug
| 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
| Jun | Aug | Aug | Jul | Aug | Jun | Aug | Jun | Aug | Aug | Jul | Jun |
Measures of Housing Affordability – is Canadian housing affordable?
This research report us by far the easiest to read, understand and perhaps right on the money!
The table below illustrates the different measures of a housing affordability and the pros/cons of each… I have written about the first 2 measures before here and here
It is worthwhile noting that method 4 – Carrying Cost is very similar to the housing affordability index published by Bank of Canada which at current levels is close to the affordable range – see chart below.
(Note: this chart is inverted so a higher point on the chart means more affordable and lower means less affordable)
For the technically inclined here is the equation for the above chart:
c = monthly payment on mortgage rate r
r = blended monthly mortgage rate reflecting fixed & variable rates
N = number of payments (300 or 25 yrs)
M0 = 0.95 x P0
P0 = value of average home
CIBC and RBC both recently published their housing reports and warned of overvaluation. I haven’t paid attention to the prior forecasts by the big banks here but I reckon some of them have been sounding the alarm bells since mid 2006-2007.
Secondly, none of these housing measures take account of “animal spirits” or simply, emotion! Let’s not forget that human emotions (along with myriad other factors) played a big role in the housing bubble down south… and housing is more often than not a very emotional purchase. Until consumers realize and understand, it is usually too late and the bubble has burst or the situation is out of hand.
Next, I’ll add a post on the share of housing to Canada’s economy… there was some chatter based on July’s GDP numbers
CMHC revises 2010 and 2011 Resale House price forecast… yet again
2010
CMHC released its quarterly housing forecast today and has changed for the 6th time, the forecast for 2010 average resale house prices!
Source: CMHC
Here is a chart showing the forecast for 2010 average resale price… the first forecast in Jan 2009 was for resale house prices in Canada to average $288100… compare that to the most recent forecast of $338900. (note the standard deviation of the forecast is $25500!)
CMHC expects resale house prices to increase in 2011
For 2011, the forecast hasn’t changed as the market conditions demand…CMHC still expects house prices to increase 1% in 2011… notwithstanding the fact that house prices have dropped about 5% the past 2 months…
| Forecast Date | 2011 Forecast Resale Price |
| 01-Jan-10 | $346700 |
| 01-Apr-10 | $350800 |
| 31-Aug-10 | $342200 |
Comparison of House prices in Vancouver and San Francisco since 1990
Source: Standard & Poors, Teranet House Price Index
Canada – New House vs Resale Housing Divergence
Global Housing report from Scotia Capital (Source):
The slowdown has been most dramatic in Canada. Average home prices in Q2 were up just 6.8% y/y, compared with 16.6% y/y in Q1. Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand. Meanwhile, increased listings are tilting overall market conditions back in favour of buyers. We expect demand to remain at a lower ebb into next year, and prices on average to be roughly flat.
It doesn’t look like Scotia Capital has seen the recent house price data… which as I pointed here & here is towards declining prices not flat
I find this chart very interesting…resale house prices increase ~130% where as new house prices rise only 50% in the last 2 decades… I wonder if this divergence was driven by speculative investment of buying a new house (planned but not built) and flipping it when it is actually built?
Source: Scotia Capital
…Traditionally, the demand and pricing for new homes mirror, but with a lag, trends in the resale market…
The report points there might be several factors for this divergence in new house prices… here are some factors sighted in the report:
- Tight Supply of resale homes
- Value added from Renovations to resale home (I agree with this one – the quality of new homes in general is not the same even with top of the line upgrades)
- Increased land values in urban centers (new construction tends to be in large suburban lands) because of:
- lifestyle choice
- traffic congestion
- established neighbourhoods
Some more subjective factors I think should be included:
- Resale homes are generally built on bigger lots
- Resale homes older than 10 years are built on wider & less congested streets
- Fewer chances of voyeurism – more space between neighbouring homes
Some other facts:
- Land value accounts for 50% of residential properties.
- Land value has increase by two and a half fold (150%) in the last decade
- The Chart below shows the construction cost of residential building materials
Source: Statistics Canada, Reed Construction Data
Toronto housing numbers out for July!
The numbers speak for themselves… Sales down 34% from last year… as expected
Source: Toronto Real-Estate Board
Average prices for GTA increased 6% to ~$420k from July 2009… just as expected
Here is something that is unexpected… month-over-month prices declined for 2nd month in a row!
May 2010 ~$446k
June 2010 ~435k (-2.45%) – Click here for June numbers
July 2010 ~$420k (-3.5%) (-5.8% from May 2010)
I have posted charts of yearly and monthly changes for the past 10 years… BUT using the Teranet House Price Index which is the S&P Case/Shiller equivalent of Canada… The Teranet House Price Index has never posted a monthly decline of this magnitude!
If this down trend (if it can be called a trend) in house prices continues, prices will revert to fair value before the end of this year… yes!!
Canada Resale Housing – Rise, fall, rise, collapse?
| Transaction Date | 6-City Composite | BC_Vancouver | AB_Calgary | ON_Toronto | ON_Ottawa | QC_Montreal | NS_Halifax |
| Peak-to-Trough Drop | -12% | -15% | -15% | -12% | -14% | -12% | -11% |
| Trough-to-Current Rise | 17% | 19% | 18% | 18% | 21% | 21% | 17% |
| 1999-2010 Annual Rate | 6.50% | 7.71% | 7.60% | 5.19% | 5.74% | 7.47% | 6.14% |
| 1999 to 2008 Peak | 96.29% | 125.02% | 150.73% | 69.76% | 78.72% | 109.63% | 86.23% |
Peak-to-Trough: The percent drop in existing home prices from their peak in Spring 2008 to the trough in Spring 2009.
Trough-T0-Current: The percent rise in existing home prices from the trough in Spring 2009 to the April 2010
1999-2010 Annual Rate: The compounded annualized growth rate in existing house prices…
Rise-to-previous peak: Total percent increase in existing home prices from 1999 to their Spring 2008 peak.
Source: Teranet
Is Canada’s housing market about to collapse US style?
don’t think so… yesterday I posted my analysis on where the housing market is going from here…
there has been a bit of chatter about Canada facing a US-style housing collapse… I believe we are in for a slowdown but no where near the 50% drop in some US cities
This chart shows the S&P Case-Shiller 10-City Composite Index, the Canadian equivalent which is the 6-city Teranet House Price Index and the teranet house price index for Vancouver
Source: Standard & Poors (US), Teranet House Price Index (Canada)
The annual house price increase in US from 1999 to 2006 was almost 2x Canada’s compound annual growth rate (CAGR) from Feb 1999 to the April 2006 peak…
| S&P Case-Shiller Composite-10 (US) | Vancouver | Teranet 6-city Composite (Canada) |
| 13.67% | 7.64% | 6.97% |
You can view the data here
Update: I have posted an objective analysis on US vs Canada:
https://takloo.wordpress.com/2010/07/30/objective-comparables-of-housing-us-vs-canada/
Most asked housing related question…
My take – Demand vs Supply
Houses are selling below list price a.k.a. no bidding wars
I have been talking to realtors at open houses for the past couple months and their unanimous verdict… market is slowing
Price Increase is slowing…demand is easing
The month-over-month increase in prices is trending down… which goes against seasonality… spring/summer is the busiest time for housing activity
More houses to choose from…& Fewer Sales
Sales to Listings Ratio is trending down i.e. there are more houses for Sale and of those, fewer houses are selling… see the red-line trending down in this chart
HST Kicked-in…demand slowing
Most economists predicted demand pull in the first half of 2010 due to HST… if this were to hold true, demand for new houses should drop until builders adjust new home prices (downward) to reflect effects of HST…
In Part II I will try to focus on housing affordability
Update: Don’t forget to read a summary of the mid-year forecasts from CREA & CMHC https://takloo.wordpress.com/2010/07/30/a-tale-of-two-housing-forecasts-cmhc-vs-crea/
Chart Source: CREA
http://creastats.crea.ca/natl/
simple financial analysis 