Canada: Home Price Inflation Decelerates To 4.8% In July

: On a y/y basis, the Teranet–National Bank National Composite House Price IndexTM rose 4.8% in July (top chart). Of the 11 metropolitan areas covered, 12-month price changes vary widely. Four exceeded national average, namely Toronto (+9.2%), Winnipeg (+7.4%), Hamilton (+5.9%) and Halifax (+5.4%). Prices rose 4.3% in Montreal, 4.2% in Quebec City, 3.4% in Ottawa-Gatineau, 2.5% in Edmonton, 1.6% in Vancouver and 1.1 % in Calgary. Prices declined 0.4% y/y in Victoria. On a seasonally-adjusted basis, the Composite monthly growth was 0.1% in July, the smallest gain since October 2010. Prices decreased 0.7% in Calgary, 0.4% in Vancouver and 0.3% in Ottawa-Gatineau. Rather large increases were observed in Victoria (+1.5%), Quebec City (+1.0%) and Hamilton (+0.9%). Prices rose 0.4% in Toronto, Winnipeg and Halifax, and 0.1% in Montreal and Edmonton.



OPINION: Our calculations based on the most recent data from major real estate boards on active listings and sales, including those of the Toronto Real Estate Board (middle chart), show that the resale condo market has recently softened in Canada’s three major metropolitan areas (see our latest Weekly Economic Letter). There is also a large number of condos under construction in these areas (bottom chart). Furthermore, according to Urbanation, in 2012Q2, the number of unsold new condos in Toronto (including those for which construction is not completed or has not started yet) is higher than its previous peak reached at the end of 2008. This evidence points to soft home price inflation over the coming months, with the possibility of deflation in certain markets. However, very tight rental markets for condos in Toronto and Vancouver allow investors to keep their units by renting them instead of listing them for sales. This limits the magnitude of an eventual price correction.