September and October were no flukes. Home prices reaccelerated further in November in Canada’s major markets amid continuing strong demand and scarce inventories across Canada. Early reports from real estate boards showed the temperature generally rising once again with home resales holding at historically high levels last month. And where resales inched slightly lower (like in the Fraser Valley) or were rather static (like in Toronto), it was largely due to a lack of supply—not softening demand. Trends over the past three months marked a departure from the broad cooling that took place in the spring and summer. Yet we remain unconvinced we’re witnessing the start of another leg up in the market’s unprecedented run. We believe much of the recent impetus in the market came from buyers front-running interest rate increases. This is usually a short-lived phenomenon. We expect the current verve to fade in the coming months, followed by a gradual moderation. Our view remains that deteriorating affordability (arising from soaring prices or higher interest rates, or both) and easing pandemic restrictions will gradually cool demand in 2022. We expect extremely tight demand-supply conditions will keep prices under intense upward pressure in the near term though we see such pressure easing significantly by the second half of 2022 as markets achieve a better balance.



Toronto area — Buyers aggressively bidding up prices

The dearth of homes for sale and spectre of higher interest rates motivated buyers to go big when they saw something they liked in November. Really big. Aggressive bidding drove up GTA’s composite MLS Home Price Index 3.9% from October to $1,173,000. This came on the heels of gains of 2.2% and 4.3% in the previous two months. That three-month spurt resulted in a staggering $114,000 increase, surpassing the $99,000 surge in the first three months of 2021 that raised concerns about the market getting out of control. The current price run-up (now at 28.3% y/y) is quickly closing in on the spike recorded in early-2017 that prompted the provincial government to impose measures to cool things down. Clearly, affordability is taking a huge hit right now and the situation is likely to worsen when interest rates go up. Self-correcting mechanisms will eventually kick in to rebalance the market though exceptionally tight supply is poised to keep prices on an upward trajectory in the near term. This would apply to both the single-family home and condo apartment segments. Demand for the latter category has increased significantly this year. We expect condos to draw sustained interest from buyers in the coming year as it represents the more affordable option—in fact, the only option for many.



Vancouver area — Maintaining a hectic pace

As atmospheric rivers flooded parts of British Columbia—isolating several communities from the rest of the province—Vancouver buyers and sellers remained very busy in November. Home resales were up nearly 12% from a year ago, sustaining a solid pace through the fall. This took place despite historically low inventories. To make those sales happen, buyers had to dig deeper into their purchasing budget. Fierce bidding drove the composite MLS HPI up 1.0% from October and 16.0% from November 2020, marking a further acceleration in prices. All housing categories are on a faster track, including condo apartments which have regained popularity this year. The MLS HPI for condos sped up 11.4% y/y in November from 9.5% in October. This was still well behind the 20.8% y/y rise for single-family homes (up from 20.5% in October). Tight demand-supply conditions are poised to extend those trends near term.



Calgary — Rally continues as confidence returns

The strong economic recovery in Alberta is clearly bolstering confidence in Calgary’s—and Edmonton’s—housing market. Activity was beyond brisk in November with home resales jumping almost 47% from a year ago. More to the point, activity has picked up materially over the past three months, including a greater than 5% m/m advance in November (based on our own seasonally-adjusted estimate). Red-hot demand is outpacing supply. Active listings have plummeted 22% over the past year, giving sellers substantial negotiation power. This is being reflected in Calgary’s composite MLS HPI, which continues to climb at a close to double-digit rate. Much of the strength is concentrated in single-family homes, where the annual rate exceeds 10%. The condo HPI is up a softer 1.5% y/y though is likely to accelerate as demand grows further and inventories fall.



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Robert Hogue is a member of the Macroeconomic and Regional Analysis Group, with RBC Economics. He is responsible for providing analysis and forecasts for the Canadian housing market and for the provincial economies. His publications include Housing Trends and Affordability, Provincial Outlook and provincial budget commentaries.

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