Ridiculous price hikes are now facing huge interest rate hikes from the Bank of Canada, the QT, and higher mortgage rates.
Written by Wolf Richter for WOLF STREET.
In Hamilton, Ontario, after a ridiculous rise, prices fell 5.8% in August compared to July, and fell 10.5% in three months. In Toronto, prices fell 4.0% in August compared to July, and fell 8.3% in three months. In Vancouver, prices fell 2.0% in August compared to July. in Ottawa by 3.1% in August; in Halifax by 3.6%. But in the oil cities of Calgary and Edmonton, prices continued to rise. We’ll get to all of them in a moment.
Teranet-National Bank’s 11-city general index of home prices fell 2.4% in August compared to July, the largest drop ever, along with a drop in Lehman’s December 2008 bankruptcy. Over the past three months, the overall index has fallen by 4.1 %. That cut the year-over-year rally from the 19% range in March and April to 8.9%:
Canada’s coolest housing bubbles are often rated among the best global housing bubbles. But consumer price inflation has risen and is spreading to the heart of the economy, and the Bank of Canada has made a series of rate hikes and QT rates.
Those rate hikes included 75 basis points at its September meeting, when it specifically ignored a downturn in the housing market, and by 100 basis points at its July meeting, which Bank of Canada Governor Teff McClem explained to Canadians this way: It’s not normal 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 Bank of Canada also dumped its balance sheet. Quantitative tightening is the opposite of quantitative easing, or “money printing,” and has opposite effects on asset prices. Its total assets are down 25% from their peak:
Higher rates and QT penetrate the most luxurious housing bubbles.
HamiltonCanada’s hottest housing bubble ever, with ridiculous annual price gains of about 30%, has overtaken Vancouver and Toronto.
But now there are the distinct sounds of hot air escaping from this most wonderful housing bubble. In August, prices fell 5.8% from July, according to the home price index from Teranet-National Bank. In the three months since the peak in May, they are down 10.5%, reducing the year-over-year price increase to 8.7%.
Blame it on the three-month monsoon drop? Nah. Look at the chart and see if there is anything seasonal about this drop.
In the greater Toronto areaAfter the ridiculously massive rally that peaked in May, home prices fell 4.0% in August compared to July. Over the three months since, the index has fallen 8.3%, cutting its year-over-year gain to 7.8%:
in Greater Vancouver, Home prices fell 2.0% during the month, down 4.1% from their peak in April. This reduced the annual increase to 8.4%:
Teranet-National Bank’s home price index is based on August closed sales. This data set here is not seasonally adjusted and it is not a three-month moving average. For the purpose of watching the housing market go from ridiculously high to cliff-diving, the tree-month moving average reaction – which I’ve used in all of my previous reports – is very slow to respond.
The index’s methodology is based on “frequency of sales” that tracks the price of the same home each time it is sold over time. Unlike median prices, the “frequency sale” method is not affected by the shift in the mix of homes sold.
Halifax It’s by no means a huge city, but it has seen a pretty impressive housing bubble with year-over-year prices in the 35% range. Supply peaked in June and over the two months since then prices have fallen by a combined 8.7%, including 3.6% in August from July. This halved the annual gain to 15%:
in VictoriaHome prices are down 1.2% for the month and 2.7% from their May peak. This narrowed the annual gain to 15%:
in WinnipegHome prices fell 1.4% in August compared to July, which was the peak, bringing annual gains down to 9%:
in MontrealHome prices, after falling 1.9% in July from their peak recorded in June, fell in August. This brought them down 1.7% from their peak in June and cut their annual gain to 12.1%:
in OttawaHome prices fell 3.1% in August from July and 4.6% in the two months from their peak in June. This cut annual gains to 4.5%. Note the majestic rise in late party prices in March through May:
in Quebec CityHome prices fell 1.1% in August compared to the peak month of July. This reduced the year-over-year gain to 10.5%.
in CalgaryHome prices have been nearly flat since mid-2007 until the Bank of Canada money-printing ritual began hitting this housing market in mid-2020. Calgary is Canada’s oil capital, and the oil business is booming right now, money is still pouring into the housing market .
In August, the index rose 1.3% from July, setting a new record, bringing annual gains to 13.6%:
in Edmonton, Also in the Canadian oil patch, home prices jumped 2.7% for the month, taking the annual gain to 4.6%. Notice how the oil-infested housing bubble that ended in 2007 turned into 15 years of essentially no price increases. There isn’t much of a housing bubble here:
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