Canada: Price History

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Soft landing for Canada’s housing market

Canada’s housing market is slowing, but is far from a US-style housing crash.

Price of new houses (the new housing price index) rose by 6.2% in the year to Feb-2008 (and 6.2% for the whole year 2007). In 2006, the index rose by 10.7%, the highest growth rate since 1990.

Residential resale prices rose 4.8% in the year to March 2008. They rose 11% on average in 2007, after rising 10.8% in 2006, according to the Canadian Real Estate Association (CREA). The average house price increased in 2007 to CA$ 307, 265, up from CA$276,325 in 2006. CREA expects house price rises to slow to 5.3% in 2008, and to further slow to 4.2% in 2009.

Canada's housing market is in its ninth year of continued house price growth. Prices are up more than 90% from 1999 to 2007.

Housing sales are expected to drop to 460,900 units in 2008, and 442,500 in 2009, down from 520,747 units sold in 2007.

Strong western provinces

The western provinces led house price growth in 2007. The average house price in Saskatchewan rose 32%, while Alberta’s average house prices rose 24.8%. Demand was strong due to increased employment, higher wages and immigration.

British Columbia has the most expensive housing among the provinces, with an average residential resale price of CA$ 439,123 in 2007, 12.3% up on the previous year. Alberta ranked second with CA$ 356,235 average residential resale price.

House prices are expected to rise in 2008 and 2009 in all provinces, but at a much slower pace.

Average house price rises in Saskatchewan are likely to decelerate in 2008 to 19.5%, according to CREA, which also forecasts Manitoba’s price rises will average 11% and British Columbia’s 10.7%. Price increases in the other provinces are expected to range from 4.3% in Ontario to 6.7% in Newfoundland.

Total housing starts increased to 228,343 units in 2007, up from 227,395 units in 2006, according to Canada Mortgage and Housing Corporation (CMHC). The 2007 level was the second highest since 1988. Housing starts are expected to fall to about 211,700 in 2008, due to higher mortgages interest rates and rising construction prices.

Rents, vacancy rates and yields healthy

Across Canada’s 34 major centres, the rental apartment vacancy rate was 2.6% in 2007, significantly down on vacancy rates in the 90s, which averaged 4.3%. Rental demand, fuelled by higher youth employment and immigration, has been balanced by the construction of rental units and condominiums.

Average rents of 2-bedroom apartments went up by 3.5% in October 2007 from a year earlier. Major centres in the western provinces registered the highest rent increases, led by Alberta (up by 17.2%), Saskatchewan (9.1%) and British Columbia (5.5%). The same provinces had the lowest rental vacancy rates (British Columbia: 1.0%, Saskatchewan: 1.2% and Alberta: 1.6%).

House prices have been rising faster than rents. From 1999 to 2006, average rents for two-bedroom units rose by only 20%, while house prices were up 75%.

Despite the increasing gap between rent and house price growth, Canada still managed to produce high yields. Global Property Guide research shows that 100-square metre apartments in Montreal and Ottawa have the highest gross rental returns of around 7.18%. Vancouver houses and apartments have the lowest yields at around 3.10%.

Strong economy, healthy housing market

Three main factors are driving the current housing boom: the strong economy, high immigration levels, and low mortgage rates.

Canada’s GDP has been continuously increasing since 1992, at an average growth rate of 3% per year. The GDP growth rate in 2007 was 2.6% with an expected 2.4% growth rate in 2008.

The strength of the labour market fueled the demand for houses, both for owner-occupation and rental. Unemployment was at a historic low of 6% in 2007, significantly lower than the peak unemployment rate of 11.4% in 1993. Real private sector wages increased by 5.4% in 2007, the highest rate of increase since 1997.

As Canada moves closer to full employment, the labour market is expected to retain its vigor in 2008 with wages expected to rise by 5.2%, while unemployment is expected to fall to 5.8%.

Canada continues to attract immigrants. Between 2001 and 2006, Canada’s population increased by 5.4%; two-thirds of the population growth was fed by international migration. Net migration rose 5.4% in 2007 to 228,415 migrants. More people are likely to move to Canada in future, CMHC expects, with 235,000 migrants projected for 2008, and 240,000 in 2009.

Ontario, Quebec and British Columbia attract the bulk of international immigrants. The outstanding economic performance of Saskatchewan, British Columbia and Alberta draws the greatest number of inter-provincial migrants. Most migrants initially rent accommodation, before acquiring houses.

Mortgage and interest rates

With inflation down to 1.4% in March 2008, the monetary authorities have signaled that they are open to further interest rate cuts. During the first four months of 2008, the Bank of Canada (BoC) reduced key rates three times, to 3.0% in April 2008.

These reductions followed a short-lived inflationary spike. When the consumer price index rose by 2.4% to end-2007, the BoC raised key interest rates to 4.5% in July 2007 from 4.25%, a rate which had been unchanged since May 2006. Following interest rate cuts in the US, the BoC promptly reduced the key rate back to 4.25% in December 2007, and further cuts followed.

Because Canadians mostly have fixed-interest rate mortgages, changes in key interest rates have only muted effects on the housing market.

In March 2007, the 5-yr conventional mortgage rate was reduced to 6.99%. It is expected to range from 7.00% to 7.75% in 2008, well down on its peak level of 8.75% in May 2000.

With low mortgage rates and financial innovations, the mortgage market has expanded rapidly in the past four years, with more than 10% annual growth rate. The mortgage market is expected to grow by 9.3% in 2008 and another 8.4% in 2009.

Canada - more data and information

• Canadian house prices, rents, and letting income - real data!
• How expensive are houses in Canada, compared to the rest of North America?
• How much rent can be earned from Canadian property, compared to the rest of North America?

Your Comments

posted by Neal | 2007-10-09

-, Canada

posted by chele | 2008-02-23

yes, Vancouver

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