Ontario Housing Prices Coming Down

The pandemic era in Canada saw a thirty percent increase in housing prices that were already high as a result of a decade of low interest rates and rising demand due to population growth.  However, a combination of rising interest rates led by the Bank of Canada in an effort to curb inflation, the inevitable subsequent slowdown in the economy, as well as inflation reducing the household resources available for home purchases has meant that home prices in Canada have finally reached their peak and are on the way down.  The latest Teranet-National Bank Housing Price Index Release shows that the National Composite House Price Index fell 3.1% from August to September, the largest monthly decline on record since the index began in 1999 and exceeded the previous month’s record decline of 2.4%. Needless to say, Ontario did not escape this trend but despite the drop, prices are still higher than they were a year ago.

 

 Figure 1 shows that year over year (September to September), prices were up in 15 out of 16 major Ontario cities with the exception being Peterborough.  The largest percentage increases year over year have been in Greater Sudbury, Kingston and Kitchener-Cambridge-Waterloo.  Thunder Bay's increase over the last twelve months was just under 4 percent.  However, prices are down from their peak in all of these cities as illustrated in Figure 2.  Most of these cities saw their prices peak in May of 2022 with the exceptions being Belleville, Kitchener-Cambridge-Waterloo and London  (peak in April 2022), Ottawa-Gatineau (peak in June 2022) and Thunder Bay (peak in July 2022).  

 

 

The largest declines since peak price have been in Windsor (16.2 percent), Oshawa (16.4 percent) and Peterborough (23.2 percent).  Meanwhile, the smallest declines since peak price were in Thunder Bay (5.7 percent), Greater Sudbury (6.1 percent) and Ottawa-Gatineau (8 percent).  Northern Ontario cities like Thunder Bay and sudbiury are not immune from national or provincial trends but they have historically not been as subject to the same fluctuations as other cities.  In Thunder Bay for example , the housing price boom while substantial relative to its historic prices was nevertheless more muted than the GTA.  The downturn will likely be similar.  It is probably no coincidence that to date the price drop in Thunder Bay, Sudbury and Ottawa-Gatineau has been the least of these 16 major cities as all three of these cities have an economic base of broader public sector employment at 30 percent of jobs or more (in the case of Ottawa- Gatineau) which provides a substantial economic stabilizer when the national average in closer to 20 percent.

Given that interest rates are expected to rise substantially next week as  inflation really shows no signs of abating in Statistics Canada's latest release, one should see the price decline continue into the fall.

Housing Prices Up in May...Even in Thunder Bay

The May Teranet-National Bank Composite House Price Index has been released and it shows the home price index in Canada up in May for the first time in nine months though it was the smallest May increase in 21 years.  Given that there is usually a bump up in real estate markets in the spring, given the small increase by historic standards, it means that real estate markets are still slow.  Indeed, once the index is seasonally adjusted it would appear that the index is actually down 0.4 percent in May rather than up 0.5 percent. 

Some of the largest markets in the country – like Vancouver – are still in decline but Ottawa and Hamilton have been seeing larger increases.  According to the Teranet Index: “Unadjusted indexes were up on the month for nine of the 11 metropolitan markets of the composite index, the exceptions being Vancouver (−0.2%) and Edmonton (−0.3%). Calgary was up 0.3%, Winnipeg 0.5%, Toronto 0.7% and Victoria 0.7%, but indexes for these four markets were down when seasonally adjusted. Index changes for Montreal (+0.5%), Quebec City (+0.8%), Halifax (+0.9%), Ottawa-Gatineau (+1.9%) and Hamilton (+2.2%) would have remained positive after seasonal adjustment.”

Of interest to those of us here in the North are the results for Thunder Bay and Sudbury which are part of a set of figures not included in the main composite index.  Quoting Teranet: “Down from nine months ago were the two in B.C. – Abbotsford-Mission (−5.2%) and Kelowna (−3.6%). Up were the five in Ontario – Thunder Bay (1.6%), Sudbury (2.9%), London (4.0%), Kingston (4.2%) and Windsor (6.8%).”  These last five cities are all places that have economically had a pretty tough time over the last few years and rising house prices are some evidence of recovery.

So, it would appear that the continuation of lower interest rates in Canada, plus what has been strong employment growth is on the whole managing to prop up real estate markets especially in some smaller Ontario centers a bit more removed from the GTA.  Windsor certainly comes to mind.  Prices in these markets are still more affordable at least by current Canadian standards though given the overall sluggishness one really cannot expect a resurgence of the boom of the last few years.  Aside from Hamilton, other centers closer to the GTA are not doing as well – for example Barrie, Peterborough, Guelph and Oshawa. 

 

Thunder Bay Housing Coming Down

A report by Moody's Analytics reported in today's Globe and Mail says that higher interest rates, newer mortgage-lending rules and declining affordability are together going to put a damper on the growth of Canadian housing prices.  Indeed, the price of single family homes in Canada is forecast to only grow at 1.3 percent annually over the next five years but there will be considerable variation across the country.  Larger urban centers with growing populations particularly in southern Ontario will do better while many other cities will see declines.

As the accompanying graph constructed from data provided in the Globe article shows (July forecast), Toronto and Hamilton are still expected to lead the pack at growth rates of 7.7 and 5.8 percent respectively but after that the growth rates drop off and indeed move into negative territory. 

Thunder Bay is expected to see annualized declines of 5.4 percent.  Reasons for this are falling median incomes, slow population growth rates and slow rates of household formation - along of course with the fact that interest rates are on the way up. Other housing price reports on the Moody site also show that Greater Sudbury is forecast to have price declines.  The May 2017 report for example (the April forecast) noted Sudbury prices over the next five years would decline by 1.2 percent annually.  The same report also had Thunder Bay declining by 1.2 percent annually with a substantial revision now in the new report. What has changed over the last few months? Interest rates.


I think interest rates are really the big factor here given that Thunder Bay's housing prices managed to double over the last 10-15 years despite the weak economy and flat population growth.  Not quite the growth of the GTA but still quite remarkable given the local demographics and economic performance. 

Housing Prices in Sudbury and Thunder Bay: The Boom is Over

A key feature of housing markets in Canada over the last decade is the sustained price increases particularly in larger urban centers such as Vancouver and Toronto.  Despite a relatively flat economy and stagnant population growth, even northern Ontario has seen a price surge in its two largest urban housing markets: Greater Sudbury and Thunder Bay.  However, while Ontario’s housing price surge especially in the GTA shows little sign of abating, it appears that economic reality may have finally caught up with northern Ontario’s largest housing markets as prices appear set to level off.