Canada’s house prices don’t typically soar in October as the market slows down heading into winter, but this year was an exception, with house prices seeing their largest jump ever for the month.
The Teranet-National Bank House Price Index was up 8.1 per cent from a year earlier in October, with prices having jumped 1.3 per cent in just the previous month.
That’s the fastest gain for a month of October in the 22-year history of the index.
Watch: Toronto among the cities with the highest risk of a housing bubble. Story continues below.
The index estimates the value of houses by tracking changes in the sale price of the same homes over time. Many economists say it’s a more accurate measure than the average sale price, which can be skewed if the mix of houses for sale changes.
That average price jumped 15.2 per cent in October, according to the Canadian Real Estate Association, driven upwards by the fact buyers are shifting away from condos and towards detached homes amid the pandemic.
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Some markets have seen enormous price gains in the index over the past year, with Ottawa leading the way (up 17.1 per cent), followed by Oshawa and Kitchener-Cambridge Waterloo (up around 16 per cent).
All but two of the 32 metro areas tracked by the index have higher house prices than a year ago. The only exceptions are Calgary (down 2.3 per cent) and St. John’s, down 2.9 per cent.
House prices were up 5.7 per cent in Vancouver and 9.5 per cent in Toronto.
Canada is not the only country to see soaring house prices; similar patterns are playing out in the U.S., U.K., Germany and elsewhere, prompting some to argue that house prices are being driven up by central bank money-printing and record-low interest rates.
The data analysis wing of Bloomberg News recently declared that housing is in a bubble. Using an indicator of asset bubbles known as the cyclically adjusted price to earnings (CAPE) ratio, they determined that house prices are the highest they have ever been relative to what properties can be rented for.
But this is a different sort of bubble than the one the U.S. experienced 12 years ago, Bloomberg noted ― that one was a sudden collapse in house prices caused by badly-designed “adjustable rate” mortgages.
“Today’s high valuations can be explained by low interest rates, as has been the usual pattern in the past,” the Bloomberg analysts wrote. “That might lead one to expect a typical correction, where housing prices deflate over a few years with differences among regions.”
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