June home price data reveals seasonal uplift in action, western Canada still struggling

First, we have the Teranet-National Bank of Canada National Composite 11 Index (C11), which is an aggregated look at home prices across Canada. The data provided by Teranet and the National Bank is quite good: they have a methodology that looks at the price change of the same specific dwelling, rather than lumping all home sales together like other indexes do. This is a way more accurate way of measuring price change, since the index looks at the exact same home. Not all homes are comparable, so this index is sweet:

Something to note is that home prices are quite seasonal. The chart above demonstrates this clearly. Generally, the first and last quarter of each year is a slumpy one for home prices, except when we had that parabolic advance in early 2017. Judging by this trend, we will probably see home prices in the C11 index continue to climb until August or September, then begin to cool-off. That is, unless things go parabolic again like they did in 2016 and 2017. 

However, I think a parabolic advance is unlikely given the cocktail of rules now in place for home buyers, and given the increase in alternative lenders in the mortgage market. Without the large banks actively originating more mortgages, the housing market is in for a rough ride... up and down.

Month-over-month data reveals the extent to which western Canada is struggling this season. Vancouver has posted the biggest loss, while Victoria has registered the largest gains. It's safe to say home prices are volatile in the province of British Columbia, and I feel it for the folks who are trying to do transactions in that province. It's probably like buying bitcoin: one day you buy your home, and the next you either have +$10,000 or -$10,000 in equity gains or losses.

On the eastern side, these 1 to 2 percentage changes in prices over the period of just one month is also a bit volatile. When you annualize something like this, it's clear that the movement is not sustainable. Ottawa and Halifax are one of the biggest victims when it comes to this. These are relatively small cities when compared to Toronto or other global standards, and in places like Halifax, there's very little proper economic development going on at all. All it takes is for a few large lenders or buyers to stop their activity, and you'll have violent swings in prices and volumes.

Halifax is vulnerable to global economic woes (particularly the trade-war), and the population is migrating heavily into urban areas from the country side across Nova Scotia. The population is shrinking everywhere but the city of Halifax, and productivity is going to be a massive issue for the province unless it can get its things in order and bootstrap economic development properly. Provincial and municipal governments should consider engaging with the Bank of Canada, and development banks like ACOA to come up with credit allocation strategies or something of the like... whatever the cost. Put the burden on the private commercial banks, if you have to - just don't inflate home prices and other consumption goods too fast.

Things are a bit more clear in the year-over-year statistics. Western Canada is in trouble, and eastern Canada is out-pacing inflation and wage growth. This is quite the subnational variation, and it's not going to be fun when national authorities try to further straighten things out with their national policies with things like consumer stress-tests, rules on foreign home buyers, and so on. The history of federalism in Canada is a bumpy one, so it's not clear how good the cooperation between various levels of government will be when it comes to dealing with Canada's real estate bubble. Will the federal government just shove changes down the provincial legislature's throats? Or, will Ottawa sit back and watch? 

Ottawa growing at 6 percent annualized is definitely not going to sit well for the feds. It's the capital, after all. Yet, Justin Trudeau's government has decided to double-down on making home ownership a Canadian dream with the rollout of a new first-time home buyer incentive slated for September - right before the October federal election. The deal includes zero interest and zero principal payments. Wow!