House prices up by 7.95% during the year to Q2 2022

Canada’s house prices continue to grow strongly by double-digit figures, but when adjusted for inflation, the rate of growth has noticeably slowed. In Q2 2022, real house prices in the country’s eleven major cities rose by 7.95% from the same period last year, following y-o-y increases of 11.01% in Q1 2022, 10.17% in Q4 2021, 12.34% in Q3 2021, and 12.55% in Q2 2021. Quarter-on-quarter, house prices increased 3.73% in Q2.

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 2018 and 2019. But as the impact of these curbs wane, the housing market bounced back starting 2020 despite the pandemic, and house prices have been growing strongly since.


Demand slows; construction activity weakens

In July 2022, the actual number of sales transactions fell by 29.3% from a year earlier, according to the Canadian Real Estate Association (CREA). Sales were down in about three-quarters of all local markets, led by the Greater Toronto Area (GTA), Edmonton, Calgary, and Greater Vancouver and the Fraser Valley. This is a sharp turnaround from a record 666,995 residential properties sold last year.

Residential construction is also weakening. Housing starts fell by 9.8% y-o-y to 120,671 units in the first half of 2022 while completions dropped slightly by 1.4% to 105,138 units over the same period.

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: Canada’s economy grew by 4.6% during 2021, partially offsetting the 5.6% contraction in 2020, primarily buoyed by a rebound in consumption and business investment, as well as recovering exports amidst the easing of pandemic-related restrictions. 

However recently, the Bank of Canada (BoC) downgraded its 2022 growth projection for the country to 3.5%, from its earlier forecast of a 4.25% expansion. According to the BoC, higher inflation, which reduces household wealth, and the impact of supply chain disruptions to the manufacturing sector, are now having a toll on economic activity. Likewise, the International Monetary Fund (IMF) also revised its GDP growth forecast for Canada to 3.4% this year, down from its initial estimate of 3.9%. 

In July 2022, the BoC raised its key rate by 100 basis points to 2.5%, its fourth consecutive rate hike this year and now the highest rate in almost 14 years, pushing borrowing costs to its highest level since the Covid-19 pandemic started. The central bank is also continuing its policy of quantitative tightening (QT).