House prices down by 1.19% y-o-y in Q3 2019

House prices in Canada's eleven major cities fell by 1.19% during the year to Q3 2019, its third consecutive quarter of y-o-y declines. Though in a quarterly basis, house prices rose by 1.3% in Q3 2019.

Home sales rising again; construction activity remains weak

Actual sales activity was up 12.9% in October 2019 from a year earlier, in contrast to an 11.2% decline in sales in 2018, according to the Canadian Real Estate Association (CREA). Sales transactions increased from a year ago in 80% of all local markets, including all of Canada’s largest urban markets.

Housing starts rose by a miniscule 0.2% y-o-y to 155,454 units in the first three quarters of 2019, based on figures from the Canada Mortgage and Housing Corporation (CMHC). On the other hand, housing completions dropped 3.8% y-o-y to 142,066 units over the same period.

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   $1,129,080    $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 1.5% this year, amidst ongoing trade conflicts and competitiveness challenges.

In October 2019, the BoC kept its key rate unchanged at 1.75%, after raising it five times since July 2017. 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.