House prices accelerated to a monthly 0.3% in March compared to February, Teranet-National Bank report stated. March’s increase surpasses annual gains of 9.9% and 7.5% in February and January, respectively.
The Composite House Price Index, started in February of 1999, tracks six major cities in Canada: Vancouver, Calgary, Toronto, Ottawa, Montréal, and Halifax. From February, prices increased the most in Halifax, Montréal and Vancouver, fell in Calgary, and hardly moved in Toronto.
The House Price Index dropped from a high of 130.79 in August of 2008 to a low of 119.19 in April of 2009 as a result of the financial crisis, but more than fully recuperated since―thanks to ultra-low interest rates and timely responses by the Canadian government and central bank. As per data in the report, only prices in Calgary remain lower than their high levels before Canada’s economic contraction began in 2008.
However, the outstanding recovery in Canada’s resale housing market is cooling as more expensive properties and an expected rise in mortgage rates force out buyers, according to the Globe and Mail―Canada’s second largest daily newspaper. With house prices at all-time highs, the number of home owners looking to sell is creating excess inventory. This, together with higher anticipated mortgage rates and more stringent qualification rules, may price more people out of the market, and ultimately, trigger a downward correction, Globe and Mail article states.
The housing market has played a critical role in Canada’s recovery. As at end of April, the average house price reached $344,968―highest on record―with average house prices up 23% from their recessionary lows, and 7% higher than they were ahead of the recession, the Globe and Mail asserts. A slowdown in the housing market can have detrimental effects on Canada’s economic recovery.
Canadian Imperial Bank of Commerce (CIBC) World Markets economist, Benjamin Tal, said that house prices could decline as much as 10% in the following two years but that a “violent” correction remains unlikely.
