Trend: house prices down 0.08% y-o-y in Q3 2018

House prices in Canada's eleven major cities fell slightly by 0.08% during the year to Q3 2018, a sharp slowdown from last year’s 9.46% growth. In fact, it was the first y-o-y decline since Q3 2009. Quarter-on-quarter, house prices increased 1% in Q3 2018.

Analysis:  Home sales fell after new market-cooling measures are introduced

There were about 516,257 homes sold in 2017, down by 4% from a year earlier, according to the Canadian Real Estate Association (CREA). In October 2018, actual sales activity dropped 3.7% from a year earlier.

The housing market is expected to slow further during the remainder of the year, amidst the introduction of another set of market-cooling measures, on the backdrop of rising mortgage interest rates. Home sales are projected to decline further by 9.8% to 462,900 units in 2018 while the national average price is forecast to edge down by about 2.8% to CA$494,900 in 2018, according to CREA.

In October 2017, the Office of the Superintendent of Financial Institutions (OSFI) announced that lenders are now required to test borrowers’ ability to pay higher interest rate than the one they have actually been offered, to test their creditworthiness if borrowing costs rise. The new measures, which came into effect on January 1, 2018, apply to all federally regulated financial institutions.

Rents, rental yields: moderate yields, around 4% to 6%  

Toronto apartment costs are around $9,409 per sq.m.

Canada: city centre apartment, buying price, monthly rent (120 sq. m)
  Buying price Rate per month Yield
Montreal $348,600 $1,564 5.38%
Toronto $1,129,080 $3,740 3.98%

Recent news:  Strong economic growth, rising interest rates

In October 2018, the Bank of Canada (BoC) raised its key rate by 25 basis points to 1.75%, after raising it four times since July 2017, in an effort to keep inflation near target. The key rate had been raised by 25 basis points each in July 2017, in September 2017, in January 2018 and in July 2018.

The Canadian economy grew by a healthy 3% in 2017, the highest growth since 2011, amidst strong growth in consumption and residential investment, as well as business investment. The economy is expected to expand by 2.1% this year and by another 2% in 2019, according to the IMF.