House prices down slightly by 0.35% y-o-y in Q1 2019

House prices in Canada's eleven major cities fell slightly by 0.35% during the year to Q1 2019, in contrast to last year’s 4.2% growth. In fact, it was the market’s worst performance in almost a decade. Quarter-on-quarter, house prices declined 2.26% in Q1 2019.


Home sales rising again; construction activity remains weak

Actual sales activity was up 4.2% in April 2019 from a year earlier, the first y-o-y growth since December 2017, mainly driven by gains in the Greater Toronto Area and Montreal, according to the Canadian Real Estate Association (CREA). This was in contrast to a 11.2% decline in sales in 2018.

Dwelling starts fell by 7.6% y-o-y to 53,669 units in the first four months of 2019, after falling by 3.1% last year, based on figures from the Canada Mortgage and Housing Corporation  (CMHC).

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: typical city centre apartment buying price, monthly rent (120 sq. m)
  Buying price Rate per month Yield
Montreal  $348,600 $1,564 5.38%
Toronto  $1,129,08 $3,740 3.98%

Recent news: Economic slowdown, rising interest rates

The Canadian economy grew by 1.8% in 2018, a slowdown from the preceding year’s 3% growth, mainly due to its ailing oil and gas industry. Bank of Canada (BoC) expects economic growth to slow further to 1.2% this year, after the economy nearly ground to a halt in Q1 2019.

In April 2019, the BoC kept its key rate unchanged at 1.75%, after raising it five times since July 2017, in an effort to buoy the economy. The key rate had been raised by 25 basis points each in July 2017, in September 2017, in January 2018, in July 2018 and in October 2018.