Canada: House prices cool in February as prices in Toronto retreat
House prices dipped in February as the housing market navigated stricter lending rules and higher interest rates, reversing two months of gains. In February, the Teranet-National Bank National Composite House Price Index recorded a marginal 0.1% decrease from a month earlier, contrasting January’s 0.3% rise. February’s dip was the result of a nearly broad-based decline across markets.
February’s reading saw only three cities record gains, the fewest in more than three years. In Toronto, which accounts for more than a third of the 11-city composite index, prices fell after rising in January, suggesting that earlier reports of a one-off uptick as homebuyers rushed to close sales ahead of the tightening of mortgage rules at the outset of the year were correct. Six other major cities recorded weaker prices in February, while prices in Victoria were flat from January. On the other hand, prices in Vancouver rose for the twelfth time in 14 months, reaching a new all-time high in February.
On an annual basis, house prices rose at the slowest pace in nearly two years, decelerating to 7.5% from 8.7% a month earlier. As expected, the housing market has been cooling off in recent months as new mortgage-lending rules in Ontario and British Columbia, as well as higher interest rates, have moderated last year’s fervor. Although broader housing fundamentals remain sturdy, especially as income gains continue outpacing borrowing costs, weaker sales in the near term are expected to dent residential investment this year and weigh on full-year economic growth.
Regarding a similarly weak report on existing home sales in February, Dina Ignjatovic, Economist at TD Economics, commented:
“The worst is likely in the rear view mirror, but regions like B.C. and Ontario could see further pressure given these markets are particularly sensitive to the tightening in regulatory conditions – with another round of regulation introduced in the B.C. budget [in February].”