18 August 2014

In case of real estate prices, the national MLS House Price Index rose by 5.3% versus July 2013. However, price tendencies still vary depending on the type of home: single-family homes showed price growth accelerating at +6.0% on a year-over-year basis, while price growth for apartment units was quite moderate (+3.2%).

Moreover, price growth depends also on the region, e.g. Calgary showed +10.5% (on a year-over-year basis), Toronto +7.9% and Vancouver +4.4%. Other regions remained below the inflation rate:  Regina (-1.6%), Ottawa (0.0%), Montreal (+0.5%), the Fraser Valley (+1.3%) and Saskatoon (+1.3%).

The main consequences

Higher momentum in Canadian real estate market, reported during the recent months, reflects the recovery from weak winter numbers and the reaction to lower interest rates. Those who wanted to buy a house last year but decided to wait when rates started rising, now are coming back to the market attracted by lower mortgage rates. In the same time, stronger economic growth keeps supporting the market demand.

Nevertheless, existing home prices may outpace the income growth for the second straight year, and it’s another reason to worry about already overvalued real estate market. It’s a well-known fact that affordability issue is a problem in many Canadian markets. As a result, economists expect the housing market to cool later in 2014 and 2015, as interest rates may go up slightly. And the last factor affecting home prices is the supply growth expected in the nearest future due to the record high number of new homes being constructed.