Canada's housing market has been a study in contrasts ever since a drop in oil prices and an interest-rate cut cooled home sales in Alberta and Saskatchewan while fuelling double-digit growth in Toronto and Vancouver.
A series of new national home price numbers out this week for April, the height of the spring market, will likely paint an even more dramatic picture of that emerging trend.
"This sort of two-speed, if not multi-speed, market is likely to be the central theme for the year," said Royal Bank of Canada senior economist Robert Hogue.
Several local real estate boards have already reported their sales numbers for April ahead of the Teranet-National Bank House Price Index due out on Wednesday and Canadian Real Estate Association's measure of national resale prices set to be released Friday. Nationally, average prices rose 9.4 per cent in March compared to a year earlier, to $439,114. Strip out Toronto and Vancouver, however, and prices rose just 2.4 per cent, the Canadian Real Estate Association said. It's expected to be more of the same in April, as hot markets in Toronto and Vancouver most likely drove up national home prices once again.
After witnessing a 50-per-cent yearly gain in March, home sales slowed in the Vancouver region resale market last month, but only slightly. Sales rose by 37 per cent compared to a year earlier, the Real Estate Board of Greater Vancouver reported. Prices soared too, by 8.5 per cent for the year. The benchmark price of a detached home in the Greater Vancouver Area hit a record high of $1,002,200.
It's much the same picture in Toronto, where sales rose 17 per cent in April, compared to a year earlier, and prices jumped by 8.4 per cent, the Toronto Real Estate Board reported.
On the other extreme, home sales in Alberta and Saskatchewan have plunged this year and economists widely expect prices to follow, dropping by roughly 10 per cent in Alberta by the end of the year. The market for expensive, high-end homes is bearing the brunt of the price drop in Calgary, helping to drive down average prices, said Toronto-Dominion Bank economist Diana Petramala. Prices have also fallen in Regina, while Saskatoon's housing market has been less affected.
Atlantic Canada is also expected to feel the pinch of the oil-price rout, with layoffs in the oil-sands industry hitting workers who were being flown in from the East Coast, affecting what was already a fairly weak housing market in some parts of the Maritimes, as well as Newfoundland.
Quebec's housing market seems poised for a modest turnaround this year, after struggling last year. Median resale prices in Montreal rose 5 per cent in April, the local real estate board reported. Housing starts fell sharply across Quebec last month, with condos dropping by 50 per cent across the province's six largest metropolitan areas. That's likely to help strengthen Quebec's housing market this year, given that an oversupply, particularly of condos, had been pushing prices down in recent years.
Can markets in Toronto and Vancouver keep up the frenetic pace of activity for the rest of the year? Not likely, economists say. A 30-basis-point drop in mortgage rates since the start of the year has given those markets a big boost. A drop of that magnitude in mortgage rates usually runs its course within six months, Ms. Petramala said, meaning those markets should settle down by the fall. Government bond yields, which affect mortgage rates, are already trending higher and are likely to keep rising toward the end of the year, even if the Bank of Canada doesn't raise interest rates, as it's not expected to do until some time in 2016. With buyers already stretched in Toronto and Vancouver, even small increases in mortgage costs will be deeply felt, Ms. Petramala said.
"Vancouver, because its homes are so expensive, it tends to be very sensitive to interest-rate movements, so we could see some weakness there," she said. "In Toronto, it's the same story. Prices have shot up significantly faster than incomes so any small movements in interest rates will have a dampening effect."
The country's two-speed housing market leaves policy-makers in a bind. Since the financial crisis, federal regulators have steadily tinkered with rules around mortgage insurance and financial regulations aimed at limiting the government's exposure to the housing market. Many experts see few available options left to try to let the steam out in just two cities.
Not that Ottawa seems particularly interested in engineering a soft landing by restricting the growth in the housing market, especially in an election year. "The policy-making in Ottawa has been primarily about limiting the exposure of the federal government to the housing market and the mortgage market specifically" Mr. Hogue said. "My read would be that's still their objective. It's not about focusing on cooling any markets in Canada."