House prices up by 6.17% y-o-y in Q3 2020
Canada’s housing market continues to gain momentum, as the impact of several rounds of market-cooling measures gradually waned. House prices in the country’s eleven major cities rose by 6.17% during the year to Q3 2020, in contrast to a y-o-y fall of 1.19% in the previous year. Quarter-on-quarter, house prices increased 2.25% in Q3 2020.
Sales rising strongly, construction activity mixed
Demand has rebounded quickly with sales surging by 32.1% in October 2020 from a year earlier, according to the Canadian Real Estate Association (CREA). In fact in the first ten months of 2020, home sales reached 461,818 units, up 8.6% from the same period last year.
Housing starts fell slightly by 0.8% y-o-y to 162,449 units in the first ten months of 2020 while completions increased 6.8% to 154,313 units over the same period.
The central bank has taken action repeatedly – raising mortgage downpayment requirements and reducing amortization periods, among others – in an effort to reduce speculative buying and avoid a disastrous housing market crash. This resulted in a sharp slowdown in house price growth in the past two years.
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: Sharp economic contraction
Canada’s economy plunged by a record 38.7% in Q2 2020, following an annualized 8.2% fall in the previous quarter, as consumer spending and business activity ground to a halt due to the COVID-19 pandemic. While no official figures are available for Q3 yet, it is clear that the economy is now improving. Yet the International Monetary Fund (IMF) still expects the Canadian economy to contract by an overall 7.1% this year. The Bank of Canada (BoC) is more optimistic, projecting a contraction of 5.5% this year before bouncing back in the next two years with an average growth of 4% annually.
In October 2020, the BoC kept its key rate unchanged at 0.25%, after cutting it three times in March 2020 (cumulative rate cut of 150 basis points).