Canada housing market update - August 2021

In this article, we dissect the latest data from The Canadian Real Estate Associate (CREA). Per CREA, the MLS Home Price Index (HPI) is the most advanced and accurate tool to gauge home price levels and trends. The national benchmark price was $738,100 in August 2021, representing a month-over-month gain of 0.5% and a year-over-year gain of 21.3%.

In the above chart, we look at the national benchmark home price since 2005 and have overlayed a trend line using a simple linear regression. We can see that while prices have been fairly stable since May, prices are far above the historical trend line (by approximately $120,000). In the past, we have seen prices correct after escalating too far, too quickly - but past activity is not an indication of future performance.

August saw the first month of price acceleration since February (increase from 0.2% to 0.5%), so we will need to watch whether that continues or will just be a blip. Another thing to consider, after experiencing more than a year of rapid price increases, is that while 0.5% month-over-month growth might seem like nothing, this still represents 6.4% growth on an annualized basis. While incomes are growing less than 3% per year, even this will cause home prices to become further detached from incomes. At this growth rate, the August 2021 benchmark home price of $738,100 would reach over $1 million by August 2026.

In the above chart, we can see how home prices changed in Canada's largest cities from July 2021 to August 2021. Hamilton Burlington, the location with the highest monthly growth, hasn't had a negative month since April 2020. Ottawa, the city with the largest decline, has seen prices fall for the third month in a row.

Despite seeing prices fall for three consecutive months, Ottawa's home prices are still $150,000 above the historical trend line. Like many other cities, Ottawa has never seen growth as it has in 2020 and the first half of 2021.

Ottawa is dealing with historically low inventory levels, as shown in the above chart. However, with months of inventory crawling up from 0.8 in May to 1.3 in August, this may be providing some relief.

Final thoughts

While no politician is saying "home prices need to come down", whoever wins the federal election will certainly try to make it seem like they are doing something about it. It's difficult to predict how much of an impact any party will have, as they all seem to have a mix of policies that both reduce and stimulate demand. There have been some interesting suggestions on the supply side, but we did not see anything that will drastically reduce the obstacles that municipal governments pose.

Thanks for reading and be sure to subscribe to get the September 2021 update when available!

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