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2017 proves Canada’s housing market is a lot more resilient

For the Canadian housing market, 2017 has been a year of high highs and low lows.

It started with parts of the market reporting year-over-year price gains of more than 30 per cent. And then came the spring of our discontent, when tougher mortgage regulations and a new foreign homebuyers’ tax in Ontario slammed the brakes on housing prices.

Now, a new year is around the corner, and the pundits are out with their crystal balls, with many predicting that a housing-price slowdown, driven by even more stringent mortgage qualifying regulations and other factors, lies ahead.

But before giving in to any doom and gloom scenarios for 2018, it is important to look at some of the lessons learned over the past 12 months.

If anything, the roller-coaster ride in housing markets in 2017 tells a story of tremendous resilience.

Look no further than Toronto. A 15 per cent tax imposed on new homebuyers; changes in mortgage regulations; a sudden existential crisis at Home Capital, a large alternative lender; and unrelenting spring rains that led to weeks of flooding all hit Toronto in April/May 2017.

Bubbly markets can falter even from one such drastic intervention. What to say of a whole host of unrelated forces ganging up on housing markets in Ontario in particular and Canada in general? What happened as a result was a slowdown in sales and prices, and not a drastic collapse due to some unexplainable factor or dubious lending practices, as was the case in the U.S. in 2008.

The state of the housing markets in Canada appears less volatile now than it did in the early summer. The month-over-month comparisons from record highs observed in March and April showed large declines. In Toronto alone, nominal housing prices dropped by 19 per cent in July 2017 from a high of $918,138 in April 2017. Sales volume declined by 49 per cent over the same period.


Comparing housing sales and prices over time require extra care. A drop in the sales volume over time is straightforward. The explanation for a drop in average housing prices is rather nuanced. A decline in average price over time does not necessarily mean that individual sales are transacting at lower values. It could also imply that as the sales volume drops, relatively cheaper homes transact more frequently assuming a higher market share than they did before.

For this reason, a constant quality price index — which controls for differences in size and type of housing — offers a more meaningful comparison. The Canadian Real Estate Association (CREA), for instance, publishes the MLS ® Home Price Index, which is robust to monthly changes in housing mix. To illustrate, CREA’s benchmark for the Greater Toronto area increased 8.4 per cent year-over-year in November 2017, whereas a naïve comparison between average sale prices between November 2016 and the same period in 2017 indicated a decline of 2 per cent instead.

A look at markets across Canada gives credence to our assertion that despite the recent slide in housing sales and prices, fears of a crash are unfounded. For instance, CREA revealed that compared to a year ago, the aggregate Home Price Index (HPI) was up by 9.3 per cent in November 2017.

The MLS Home Price Index shows that prices remain higher in pricier markets, but have declined in some parts of the country.


Regional housing markets presented a similarly positive outlook. Over a 12-month period in November 2017, benchmark housing prices were up in 11 out of the 13 regional markets monitored for the Price Index. Benchmark housing prices in the Greater Vancouver area were up by 14 per cent, in Greater Toronto by 8.4 per cent and in Greater Montreal by 5.6 per cent.

Housing markets in the prairies, however, appear to be struggling, with Calgary up by a mere 0.25 per cent in November, and Regina and Saskatoon down by 3.5 and 4 per cent respectively as compared to a year earlier.

Starting in January 2018, a new stress test will require borrowers to qualify for a higher than the contracted mortgage rate. Accordingly, most forecasts suggest a further slowdown in housing markets.

New buyers looking to get into the market may wind up disappointed, however, as changes to mortgage regulations and rising interest rates could negate any benefit from declining prices.

But given the strong fundamentals, the long-term outlook on Canadian housing markets is positive. What matters for buyers is timing. If you wait too long, you may end up priced out of the market for a long time.

The article appeared in the Financial Post on December 27, 2017.

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