Canada’s Hottest Housing Bubbles, September Update: Home Price Plunge
Ridiculous price spikes are now faced with monster Bank of Canada rate hikes, QT and soaring mortgage rates.
By Wolf Richter for WOLF STREET.
In Hamilton, Ontario, after a ridiculously mind-blowing spike, prices plunged 5.8% in August from July and were down 10.5% in three months. In Toronto, prices plunged 4.0% in August from July and are down 8.3% in three months. In Vancouver, prices fell 2.0% in August from July; in Ottawa by 3.1% in August; in Halifax by 3.6%. But in the two oil cities, Calgary and Edmonton, prices still jumped. We’ll get to each of them in a moment.
The Teranet-National Bank aggregate house price index for 11 cities plunged 2.4% in August from July, the largest decline on record, with the December 2008 fall of Lehman’s bankruptcy. Over the past three months, the overall index has fallen by 4.1%. This reduced the year-over-year peak of the 19% range in March and April to 8.9%:
Canada’s finest housing bubbles are often ranked among the best of all global housing bubbles. But consumer price inflation has soared and is spreading to the core of the economy, and the Bank of Canada has cracked down with a series of rate and QT hikes.
Those rate hikes included 75 basis points at its September meeting, when it specifically brushed off the housing market pullback, and by a monster 100 basis points at its July meeting, which the BoC Governor Tiff Macklem explained to Canadians this way: “Things aren’t normal right now. After 30 years of low and stable inflation, many Canadians are experiencing the pain of high inflation and the uncertainty that comes with it for the first time.
The BoC also unloaded its balance sheet. Quantitative tightening is the opposite of quantitative easing, or “money printing,” and has opposite effects on asset prices. His total assets fell 25% from the peak:
Higher rates and QT prick the most splendid real estate bubbles.
hamiltonin Ontario, had become the most splendid real estate bubble of all time in Canada, with ridiculous year-over-year price gains of around 30%, overtaking Vancouver and Toronto.
But now there are the distinctive sounds of warm air hissing out of this most splendid bubble of accommodation. In August, prices fell 5.8% from July, according to the Teranet-National Bank home price index. In the three months since the peak in May, they plunged 10.5%, which reduced the year-over-year price increase to 8.7%.
Blame the three-month plunge on seasonality? No. Look at the chart and see if there is anything seasonal about this drop.
In the Greater Toronto Area, after the majestically ridiculous spike that peaked in May, home prices plunged 4.0% in August from July. In the ensuing three months, the index plunged 8.3%, narrowing the year-over-year gain to 7.8%:
In Greater Vancouver, home prices fell 2.0% for the month and are down 4.1% from April’s peak. This reduced the year-over-year increase to 8.4%:
The Teranet-National Bank home price index is based on sales completed in August. This dataset here is not seasonally adjusted and is not a three-month moving average. In an effort to see the housing market go from a ridiculous peak to a dizzying dip, the three-month moving average – which I’ve used in all my previous reports – is reacting too slowly.
The index methodology is based on “repeat sales” which tracks the price of the same home each time it is sold over time. Unlike median prices, the “repeat sales” method is not affected by a change in the mix of homes sold.
Halifax is by no means a big city, but it had an extremely splendid housing bubble with year-over-year price spikes of around 35%. And the show peaked in June and in the two months since, prices have fallen 8.7% in total, including 3.6% in August compared to July. This halved the year-over-year gain to 15%:
In Victoria, real estate prices fell by 1.2% over the month and by 2.7% compared to the peak in May. This reduced the year-over-year gain to 15%:
In Winnipeghouse prices fell 1.4% in August from July, which had been the peak, reducing the year-over-year gain to 9%:
To Montreal, house prices, after falling 1.9% in July from the peak in June, fell slightly in August. That left them down 1.7% from the June high and trimmed the year-over-year gain to 12.1%:
In Ottawa, home prices plunged 3.1% in August from July and 4.6% in the two months from the peak in June. This reduced the year-over-year gain to 4.5%. Note the majestic late-night price spikes from March to May:
In Quebec, house prices fell 1.1% in August compared to July, which had been the peak. This reduced the year-over-year gain to 10.5%.
In Calgaryhouse prices had remained roughly flat from mid-2007 until the Bank of Canada’s money-printing orgy began to hit this housing market in mid-2020. Calgary being the oil capital of Canada and the oil sector being booming right now, money continues to flow into the housing market.
In August, the index rose 1.3% from July, to a new record high, taking the year-over-year gain to 13.6%:
In Edmonton, Also in Canada’s oil patch, home prices jumped 2.7% for the month, taking the year-over-year gain to 4.6%. Note how the oil boom housing bubble that ended in 2007 turned into 15 years of virtually no price increases. Not really a real estate bubble here:
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