Home Price Inflation Decelerates To 4.1% In August

On a y/y basis, the Teranet–National Bank National Composite House Price IndexTM rose 4.1% in August (top chart). Over the 11 metropolitan areas covered, 12-month price changes vary widely. Four exceeded the national average, namely Toronto (+8.3%), Hamilton (+7.1%), Winnipeg (+6.5%) and Halifax (+6.2%). Prices rose 4.1% in Montreal, 3.6% in Quebec City, 3.2% in Ottawa-Gatineau, 2.6% in Edmonton and 0.8 % in Calgary. Prices declined 0.3% in Vancouver and 1.1% in Victoria.

On a seasonally-adjusted basis, the Composite edged down 0.1% from July to August, the first monthly decline since October 2010. Prices were down in three of the 11 metropolitan areas covered, namely Victoria (-1.2%), Vancouver (-0.9%) and Quebec City (-0.5%). However, they were up 1.3% in Hamilton, 0.5% in Halifax, 0.3% in Edmonton, 0.2% in Winnipeg and 0.1% in Toronto, Ottawa- Gatineau, Calgary and Montreal.



OPINION: The drop in the Composite Index in August (after seasonal adjustment) was concentrated in three areas, with minimal increases in four others. Larger increases only took place in markets considered tight. The drop in the Composite Index occurred after a string of monthly declines in total home sales in the regions covered by the Composite, with August’s decline the steepest (-5.9% - middle chart) and the most generalized (9 out of 11 regions).

These developments in the 11 metropolitan areas covered by the index are representative of total home sales in Canada (bottom chart). The sharp drop in August sales is perhaps partly the result of the reduction from 30 years to 25 years of the maximum amortization period recently ruled for government-backed insured mortgages. Some would-be home buyers seemingly no longer qualify for a mortgage. In our opinion, moderate sales level will persist over this year and next, with house prices fluctuating without tendency at the national level, if not declining a bit.