The Most Splendid Housing Bubbles in Canada, September Update: House Prices Plunge

Ridiculous price spikes are now facing monstrous rate hikes from the Bank of Canada, QT and soaring mortgage rates.

By Wolf Richter by WOLF STREET.

In Hamilton, Ontario, after a ridiculous and mind-boggling spike, prices fell 5.8% in August from July and 10.5% in three months. In Toronto, prices fell 4.0% in August from July and are down 8.3% in three months. In Vancouver, prices fell 2.0% in August from July; in Ottawa 3.1% in August; in Halifax 3.6%. But in the two oil cities, Calgary and Edmonton, prices continued to rise. We’ll get to each of them in a moment.

The 11-city Teranet-National Bank General House Price Index plunged 2.4% in August from July, the biggest drop on record, along with the Lehman bankruptcy plunge in December 2008. last three months, the general index has fallen by 4.1%. This reduced the year-over-year peak of the 19% range in March and April to 8.9%:

Canada’s most splendid housing bubbles are often ranked among the best of all global housing bubbles. But consumer price inflation has spiked and is spreading to the core of the economy, and the Bank of Canada has been cracking down with a series of rate and QT hikes.

These rate hikes included 75 basis points at their September meeting, when he specifically ignored the pullback in the housing marketand for a monster 100 basis points at their July meeting, which BoC Governor Tiff Macklem explained to Canadians this way: “Things are not normal right now. After 30 years of low and stable inflation, many Canadians are experiencing the pain of high inflation, and the uncertainty that comes with it, for the first time.”

The BoC has also been unloading its balance sheet. Quantitative tightening is the opposite of quantitative easing, or “money printing,” and has opposite effects on asset prices. Their total assets are down 25% from peak:

Higher rates and QT puncture the most splendid real estate bubbles.

hamiltonOntario, had become Canada’s most splendid housing bubble of all time, with ridiculous year-over-year price gains of around 30%, outpacing Vancouver and Toronto.

But now there are the distinctive sounds of hot air hissing out of this splendid housing bubble. In August, prices plummeted 5.8% from July, according to the Teranet-Banco Nacional house price index. In the three months since the May peak, they have plunged 10.5%, reducing the year-over-year price increase to 8.7%.

Is seasonality to blame for the three-month drop? No. Look at the chart and see that there is something seasonal about this drop.

In the Greater Toronto AreaAfter the majestically ridiculous spike that peaked in May, home prices fell 4.0% in August from July. Over the three months since then, the index has plunged 8.3%, trimming the year-over-year gain to 7.8%:

In Greater Vancouver House prices fell 2.0% in the month and are down 4.1% from the April high. This reduced the year-over-year increase to 8.4%:

The Teranet-National Bank House Price Index is based on closed sales in August. This data set here is not seasonally adjusted and is not a three-month moving average. In order to see the housing market go from a ridiculous peak to a bust, the tree’s monthly moving average, which I used in all my previous reports, is too slow to react.

The Index’s methodology is based on “repeat sales” which tracks the price of the same home each time it is sold over time. Unlike median prices, the “repeat sales” method is not affected by a change in the mix of homes sold.

halifax It’s not a big city by any means, but it had a hugely splendid housing bubble with year-over-year price spikes in the 35% range. And the show peaked in June and over the two months since, prices have plunged a combined 8.7%, including 3.6% in August from July. This has cut the year-over-year gain in half, to 15%:

in victory, house prices fell 1.2% in the month and 2.7% from the peak of May. This reduced the year-over-year gain to 15%:

in WinnipegHouse prices fell 1.4% in August from July, which had been the peak, reducing the year-over-year gain to 9%:

in Montréal, house prices, after falling 1.9% in July from the June peak, eased slightly in August. This left them 1.7% below the June peak and reduced the year-over-year gain to 12.1%:

in ottawa, house prices fell 3.1% in August from July and 4.6% during the two months from the June peak. This reduced the year-over-year gain to 4.5%. Note the majestic price spikes at the end of the festival from March to May:

in quebec city, house prices fell 1.1% in August from July, which had been the peak. This reduced the year-over-year gain to 10.5%.

in Calgaryhouse prices were pretty much flat from mid-2007 until the Bank of Canada’s money-printing spree started hitting this real estate market in mid-2020. As Calgary is Canada’s oil capital and the oil business is booming right now, money keeps flowing into the real estate market.

In August, the index rose 1.3% from July to a new record, bringing the year-over-year gain to 13.6%:

in Edmonton, Also in oil zone Canada, house prices rose 2.7% in the month, bringing the year-over-year gain to 4.6%. Consider how the housing bubble of the oil boom that ended in 2007 turned into 15 years of essentially no price increases. Not much of a housing bubble here:

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