Average home prices are receding from the frenzied levels reached in 2021 and early 2022, with more declines on the horizon..The average home price across the country has dropped by about 18% since peaking in February, according to the Canadian Real Estate Association (CREA)..But focusing on the market-wide average price is not really indicative of what may be happening in any given market, says Bob Dugan, chief economist at Canada Mortgage and Housing Corporation (CMHC).."The average price can change with the composition of what’s being sold from month to month,” says Dugan. “The mix of properties being sold each month, the composition, heavily influences the national average price, meaning if single-family homes outsell condos one month, but that trend is reversed in the next, the national price is likely to fall because single-family homes are usually more expensive than condos.”.As an example, CREA’s MLS Home Price Index Aggregate Composite Benchmark, which takes into account changes in composition, registered only a 3.3% decline between March and June, a not insignificant drop, Dugan says, but a far less dramatic one than the national unadjusted average..“Most of the change in prices is composition,” he told Canadian Mortgage Professional. “It’s not that house prices have plummeted, but because of higher interest rates, maybe people aren’t qualifying for single-family homes as much, so they’re buying row homes, condos and that’s really changed the mix of houses that have sold.”.The shift in buying habits can be seen in Calgary, where the single-family home has always been the top choice with condominium apartments at the bottom. In July, single-family sales were still at the top, but apartments shot into second spot..The shift is also evident in the Greater Toronto Area..“Less expensive home types, including condo apartments, experienced stronger rates of price growth as more buyers turned to these segments to help mitigate the impact of higher borrowing costs,” says Jason Mercer, chief market analyst for the Toronto Region Real Estate Board..Paul Betts, president of GAP Marketing Group, a real estate marketing and training company, agrees it’s about composition..“There is a day of reckoning coming on prices but many will confuse average price to what is real,” says Betts. “The only way to truly track prices is product specifically, not the overall sales volume divided by the number of sales.”.It will be seen in the national average price going forward, says Dugan..“Geographical composition changes can also have a direct impact on the national average price,” he says. “If sales slow in the Greater Toronto and Greater Vancouver Areas, where prices are high, but more homes are sold in less expensive areas, the overall average price will most likely fall.”.CMHC is forecasting a 5% decline in the national average price by the middle of 2023 compared to its early 2022 high, a calculation that Dugan said is made along similar lines to the HPI benchmark..“A lot of economists are talking about the average price going forward and seeing 10 to 20% declines,” he says. “They’re talking about an average price where the composition is changing, but I just don’t like to talk about that because I just don’t think Canadians buy an average house.”.“Someone who’s in the market for a condo buys a condo, so they care more about how the price of condos has changed over the last couple of months, or how the price of single-family homes, if that’s what you’re going to buy, changed.”.Dugan agrees the financial burden that comes with rising interest rates would impact many homeowners, adding qualifying rules and the stress test mean the prospect of widespread mortgage defaults was a remote one..“In Canada, rising interest rates typically don’t tend to result in a high number of borrowers defaulting on their mortgage, perhaps because of different rules north of the border compared with the United States,” he says..“Here there’s full recourse on the mortgages. Back in the financial crisis in 2008 in the US, you heard about homeowners who just handed their keys back to the bank when they were underwater on their mortgage, and they just walked away.”.“Because of recourse in Canada, you can’t do that. If you hand your keys back to the bank and it sells the house, but not for the whole mortgage that’s left, they can come after you for your other assets.”.“That recourse gives homeowners a lot more skin in the game.”
Average home prices are receding from the frenzied levels reached in 2021 and early 2022, with more declines on the horizon..The average home price across the country has dropped by about 18% since peaking in February, according to the Canadian Real Estate Association (CREA)..But focusing on the market-wide average price is not really indicative of what may be happening in any given market, says Bob Dugan, chief economist at Canada Mortgage and Housing Corporation (CMHC).."The average price can change with the composition of what’s being sold from month to month,” says Dugan. “The mix of properties being sold each month, the composition, heavily influences the national average price, meaning if single-family homes outsell condos one month, but that trend is reversed in the next, the national price is likely to fall because single-family homes are usually more expensive than condos.”.As an example, CREA’s MLS Home Price Index Aggregate Composite Benchmark, which takes into account changes in composition, registered only a 3.3% decline between March and June, a not insignificant drop, Dugan says, but a far less dramatic one than the national unadjusted average..“Most of the change in prices is composition,” he told Canadian Mortgage Professional. “It’s not that house prices have plummeted, but because of higher interest rates, maybe people aren’t qualifying for single-family homes as much, so they’re buying row homes, condos and that’s really changed the mix of houses that have sold.”.The shift in buying habits can be seen in Calgary, where the single-family home has always been the top choice with condominium apartments at the bottom. In July, single-family sales were still at the top, but apartments shot into second spot..The shift is also evident in the Greater Toronto Area..“Less expensive home types, including condo apartments, experienced stronger rates of price growth as more buyers turned to these segments to help mitigate the impact of higher borrowing costs,” says Jason Mercer, chief market analyst for the Toronto Region Real Estate Board..Paul Betts, president of GAP Marketing Group, a real estate marketing and training company, agrees it’s about composition..“There is a day of reckoning coming on prices but many will confuse average price to what is real,” says Betts. “The only way to truly track prices is product specifically, not the overall sales volume divided by the number of sales.”.It will be seen in the national average price going forward, says Dugan..“Geographical composition changes can also have a direct impact on the national average price,” he says. “If sales slow in the Greater Toronto and Greater Vancouver Areas, where prices are high, but more homes are sold in less expensive areas, the overall average price will most likely fall.”.CMHC is forecasting a 5% decline in the national average price by the middle of 2023 compared to its early 2022 high, a calculation that Dugan said is made along similar lines to the HPI benchmark..“A lot of economists are talking about the average price going forward and seeing 10 to 20% declines,” he says. “They’re talking about an average price where the composition is changing, but I just don’t like to talk about that because I just don’t think Canadians buy an average house.”.“Someone who’s in the market for a condo buys a condo, so they care more about how the price of condos has changed over the last couple of months, or how the price of single-family homes, if that’s what you’re going to buy, changed.”.Dugan agrees the financial burden that comes with rising interest rates would impact many homeowners, adding qualifying rules and the stress test mean the prospect of widespread mortgage defaults was a remote one..“In Canada, rising interest rates typically don’t tend to result in a high number of borrowers defaulting on their mortgage, perhaps because of different rules north of the border compared with the United States,” he says..“Here there’s full recourse on the mortgages. Back in the financial crisis in 2008 in the US, you heard about homeowners who just handed their keys back to the bank when they were underwater on their mortgage, and they just walked away.”.“Because of recourse in Canada, you can’t do that. If you hand your keys back to the bank and it sells the house, but not for the whole mortgage that’s left, they can come after you for your other assets.”.“That recourse gives homeowners a lot more skin in the game.”