The best real estate bubbles in Canada: why the Bank of Canada is reducing quantitative easing

And total madness has started to “decelerate” in some markets.

By Wolf Richter for WOLF STREET.

At least the Bank of Canada officially recognizes the craziness of the Canadian real estate market, which has been considered the second largest real estate bubble in the world, behind New Zealand, whose central bank has also officially recognized its real estate bubble, and has shut down Turkey’s cold QE, unlike the Fed, which refused to officially recognize anything.

As of last October, the Bank of Canada began the process of ending its asset purchases. It has since stopped buying mortgage-backed securities, unwound its repo and treasury bill holdings, and for the third time reduced the amount of its weekly purchases of Government of Canada bonds, by C $ 5 billion per week last year to C $ 2 billion. per week now. Its balance sheet assets grew from C $ 575 billion in March to C $ 487 billion last week. And in his statements, the real estate bubble occupies an important place.

Housing markets are reacting slowly, spread over years, and Canada’s housing market has started to react a little bit. Home sales in June fell 8.4% from May, the third consecutive month of decline, and inventories rose to 2.3 months of supply from 2.1 months. And in a few markets, like the GTA, historic price spikes have started to “decelerate,” as it’s now called, month-to-month, but they’re still crazy.

In Greater Vancouver, house prices jumped 2.7% in June from May and are up 14.7% year-on-year, according to the Teranet-National Bank House Price Index today. Note how the Bank of Canada’s radical monetary policies from March 2020 reversed the Vancouver real estate crisis that had already been underway for a few years:

The Teranet-Banque Nationale Home Price Index tracks the prices of single-family homes through “sale pairs, Similar to the Case-Shiller Home Price Index in the United States, comparing the price of a home that sold in the current month to the price of the same house when he sold before. Because it measures how many additional Canadian dollars it takes to buy the same home over time, it is a measure of home price inflation.

In the Greater Toronto Area, the surge in house prices has “decelerated”: in June, the index jumped 2.7% compared to May, but this insane increase (to 32% at an annualized rate!) was the slowest since March . On a year-over-year basis, the index jumped 15.9%. Note the drop in house prices in 2017, and the subsequent floating, until the BoC opens its safe:

All of the charts here are at the same scale as the Vancouver chart, with more white space appearing at the top as we move down the list, indicating slower price increases over the past 20 years, compared to Vancouver.

In Hamilton, Ontario, home prices were up 3.8% in June from May, and a staggering 28.0% year over year, thank you Bank of Canada hallelujah. But now the BoC, with an eye on this exponential rise in house price inflation, is withdrawing its sweeping monetary policies. Here too, the housing market had started to decline and falter in 2017, and it was the BoC’s pandemic policies that triggered this spike:

In Victoria, house prices rose 2.7% in June and 18.5% year-on-year. The housing market flattened in 2018 and stayed that way until the BoC opened its safe in March 2020:

In Winnipeg, house prices jumped 1.3% for the month, the smallest increase since March, a sign of this “deceleration”, and are up 9.9% year-on-year. Here too, house prices stabilized in 2013, but BoC policies let them down:

To Montreal, house prices jumped 2.8% for the month and 19.4% year-on-year:

In Ottawa, house prices jumped 4.0% for the month (48% annualized!) and 25.8% year-on-year. But wait, that insane 4.0% increase in June was down from the frightening and insane 4.9% (59% annualized) increase in May:

In Halifax, house prices soared 3.5% in June, and as huge as that was, this was a deceleration from the 4.3% peak in May and the 5.4% peak in April. Year over year, prices increased 30.8%:

In Quebec, house prices rose 1.3% for the month and 10.8% year-on-year:

Calgary and Edmonton, the last two cities in the Teranet-National Bank home price index, are the Canadian cities of falling oil. In Calgary, house prices were still lower than they were in 2014, and just above what they were in 2007; and the Edmonton index remains well below the peak of the 2007 oil boom. In recent years, some sort of reason has set in. Thus, none of the cities qualifies for this list of the most beautiful real estate bubbles in Canada.

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Robert Valdivia

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