House prices have continued to edge up in recent months despite the lockdown and, as the economy recovers, we think they will remain resilient over the rest of the year.
House prices to remain resilient
- House prices have continued to edge up in recent months despite the lockdown and, as the economy recovers, we think they will remain resilient over the rest of the year.
- The 0.7% m/m increase in the Teranet House Price Index in June was weaker than it looked. By our seasonal adjustment, prices only edged up by 0.1% m/m. That caused house price inflation to edge down to 5.9%, from 6.0%.
- Several major cities saw prices decline in seasonally adjusted terms. Prices fell by 0.4% m/m in Toronto, 0.7% m/m in Vancouver and over 1% in both Calgary and Edmonton. Those falls were offset by stronger results elsewhere, including a 0.6% rise in Montreal and increases is several smaller cities as well. The annual rates of house price inflation remained vastly different between cities, at -2.4% in Calgary, 1.1% in Vancouver, 9.1% in Toronto and 10.3% in Montreal.
- The Teranet index uses a three-month average to reduce volatility, so the June data essentially cover developments over April, May and June. Those should have been the weakest months for the housing market given the lockdowns, so it is an encouraging development that prices nevertheless inched up.
- Indeed, the most recent data suggest the housing market has proved far more resilient than we initially feared. Sales rebounded strongly in June and returned to the average level they were in the 12 months prior to the lockdown. By contrast, new listings rebounded by less, so the sales-to-new listing ratio rose back toward pre-virus levels. Although the relationship between the ratio and house prices has loosened since the mortgage stress tests were imposed in 2018, the ratio suggests house prices are unlikely to fall. (See Chart 1.) Reflecting this, we recently changed our forecast to assume no change in house prices over the rest of the year, followed by house price inflation of 3% in 2021 and 5% in 2022. (See here.)
Chart 1: House Prices & Sales-to-New Listing Ratio
Source: CREA, Teranet, Refinitiv
Table: Teranet-National Bank House Price Indices
Sources: Refinitiv, CE (*Seasonally Adjusted)
Stephen Brown, Senior Canada Economist, firstname.lastname@example.org