Chartbook: Canadian Economy Up Against Multiple Threats

On many levels an economic mean-reversion is taking place as a decade long bull-market in Canadian real estate has now stalled, coinciding with other faltering drivers of the Canadian economy. Meanwhile, the US housing market has surged 8% higher in the last year and cities such as Phoenix Arizona have risen over 25%. This recovery has emerged after a six-year US real estate drudging that has left in its wake systemically high US unemployment and a global economic dependence on central bank-sponsored stimulus.

Unlike with the US, Canadian markets are undergoing a period of price weakness; home prices in major markets of Toronto, Montreal, Vancouver, and Calgary are all lower from their all-time highs as the chart below illustrates. Notably, Canada’s three largest cities, Vancouver, Toronto, and Montreal are only into the first year of a potential lengthy period of price weakness.

However, even these early signs of weakness are significant because they are being accompanied by a systemic “drying up” of home sales volume. In some markets the volume drought has been large in magnitude. Vancouver in particular experienced April 2013 sales which were the lowest April sales since 2001, or 20.9% below the ten-year April average (Vancouver Sun). This reduction in sales volume is not just in Vancouver. The Canadian Real Estate Association (CREA) reported 90 percent of the local markets that it monitors posting year-over-year March sales declines (BNN). Why is the volume of home sales important? Sales volume contraction is often a precursor to price declines within any asset class, and particularly so in housing. We examined this fact in our previous chartbook publication by examining US housing sales volume changes leading up to the US housing crash (Chartbook Dec 2012).
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In addition to the sales volume drought, average home prices are also exhibiting weaknesses. In Vancouver, widely considered Canada’s “bubbliest” city, average single family home sale prices are down over 14% from their highs and average condo prices are close to 2007 levels (Brian Ripley’s CHPC).
The decade long shift in leadership between Canadian and US housing prices is best observed through our charts on relative US/Canadian housing markets (Section D– chart library). Canadian markets of Vancouver, Toronto, and Montreal have now all reversed bullish trends versus US markets which had been in place since December of 2005 (See Vancouver Chart below). The only major exception is Calgary, where home prices have continued their sideways move relative to US home prices which began in 2009. (more)

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