Canadian real estate prices are plummeting, but have a long way to go before the froth dissipates. BMO warned investors over the long weekend that home prices deviated from the trend by up to 76% in Q1 2022. Home prices historically only add a small premium to real wage growth and interest rates. However, Canada is currently seeing the widest deviation in the past 40 years. The bank expects a significant correction through 2023.
Canadian Real Estate Prices Are Massively Overvalued
Canadian real estate has made an unusual deviation from the trend, making it clear this has been a bubble. Since 1980, BMO estimates home prices have increased 3% per year in real terms. The bank says this roughly reflects real (inflation-adjusted) wage growth and interest rates. That changed recently.
Over the past two years, home prices have climbed 38% above trend, noted the bank to investors. Prices have jumped over a third in the past two years, going waaay past the baseline trend. Deviations from the trend are better known as overvaluation, and tend not to stick around too long. Canada has never seen such a large gap above the trend — at least in the past 40 years.
It’s A National Bubble, But Southern Ontario Is The Worst
The bank warns most of the country has seen frothy gains, with a few exceptions. However, Ontario is pushed to an extreme, with home prices 55.4% higher above the trend, as of Q1 2022. It’s worse in Southern Ontario, with Toronto (+41%), and its exurbs (1 to 2 hours away) rising 76.3% overvalued. Cottage country (+63.6%) has also gotten ahead of itself, and won’t have fun discovering where its true value should be.
“While Toronto prices were 41% above trend, exurbs (using markets 1-2 hours outside Toronto) were ahead by more than 70%,” warns the bank.
Other regions also have steep trend deviations, including Atlantic Canada (+34.7%), Quebec (+32.6%), and BC (+21.4%). Those might not look huge in contrast to Ontario, but if normalization were to occur and a third of price gains were trimmed — you probably wouldn’t be too happy.
Not all provinces are suffering from this steep overvaluation. Manitoba (+12.3%), Saskatchewan (-3.4%) and Alberta (-5.0%), all had a relatively small climb, or dropped in the case of the last two. Consequently, there isn’t nearly as much to correct.
A Canadian Price Correction Is Already Underway
It’s hard to find someone that hasn’t noticed this recently, but Canadian real estate prices are doing the unthinkable — falling. Home prices are down 8% from the February peak, with many local markets down even further.
BMO explained to investors, “a price correction in Canadian housing is well underway, and many local markets are easily already down 20%. We expect the adjustment to run through most of 2023, as the market absorbs the sharp increase in borrowing costs, while a broader economic slowdown also weighs on previously raging demand.”
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
