The hangover after a drunken party that turned buyers’ brains to pulp, provoked by the Bank of Canada’s money-printing and interest-rate suppression.
By wolf richter For wolf street,
Home sales in Canada fell 37% in January from a year earlier, amid rising inventory. According to Canada Composite Home Prices, home prices fell 0.5% in December to January, down 12.6% year-over-year and 17.8% from the peak in March 2022, marking the 10th consecutive month-over-month decline. There is a decline. Index by the Canadian Real Estate Association (CREA).
At C$713,700, the Composite Benchmark Index for all home types has now fallen from C$167,400 in 10 months to its lowest level since August 2021.
It’s the hangover after a drunken party fueled by the Bank of Canada’s money-printing binge and interest-rate suppression. It began in March 2020, immediately turning buyers’ minds into austerity, and lasted until March 2022, when the BoC’s lift-off rate hike took away the alcohol.
In those 10 months since the lift-off, the BoC has now raised its key policy rate by 425 basis points to 4.5%. After the January meeting, BoC Governor Tiff McCallum said that the BoC would pause to judge the effectiveness of rate hikes and think carefully about next steps. But with inflation still at 6.3%, “the question we’re really asking ourselves is, ‘Have we done enough?’ We are pausing to assess whether we have done enough,” he said,
The BoC started QT long before the Fed and has so far drained 32% of its total assets (grey line). It has cut its Government of Canada Bonds by 21.5%. It has gotten rid of almost all of its other assets. It started warning about a housing bubble in the spring of 2021 when it started offloading assets:
Unlike the US, Canada’s housing market made only a few feathers flutter through the financial crisis and then entered one of the world’s largest housing bubbles.
In terms of house prices, the 10-month decline of 17.8% was the deepest and fastest 10-month decline ever recorded in CREA’s data in 2005. But it’s now a real housing bust in the making. Homes are being reevaluated on a scale from ridiculously high to:
Greater Toronto Area: The MLS Home Price Index Composite benchmark price fell 0.2% to C$1.079 million for the month:
- From peak in March 2022: -19.2%
- Year-to-date: -14.2%
- Decline in 10 months from peak in March 2022: -C$256,100
- Jump in 10 months to peak in March 2022: C$316,500
Greater Vancouver: The MLS Home Price Index Composite benchmark price fell 0.3% to C$1.11 million for the month:
- From peak in April 2022: -12.1%
- Year-to-date: -6.6%
- Decline in 9 months from peak in April 2022: -C$153,300
- Peak in 9 months in April 2022: +C$169,700
Hamilton-Burlington Metro: The MLS Home Price Index Composite benchmark price rose 0.8% to C$809,800, after falling 3.3% in November to December and nearly 25% from the peak in February 2022.
The index was up 70% in 23 months, from the start of the Bank of Canada’s money-printing binge in March 2020. And yet, in those 11 months, house prices fell sharply (-C$259,000) while they rose (+C$248,300) during the previous 11 months of the run-up.
- From peak in February 2022: -24.2%
- Year-to-date: -20.0%
- Decline in 11 months from peak in February 2022: -C$259,000.
- Jump in 10 months to peak in February 2022: +C$248.300
Victoria: The overall benchmark price fell 0.7% to C$866,700 for the month:
- From peak in June 2022: -12.0%
- Year-to-date: -1.3%
- Decline in 6 months from peak in June 2022: -C$118,800
- Jump in 6 months to peak in June 2022: +C$164,300
Ottawa: The overall benchmark price fell 1.1% to C$603,900 for the month – the lowest since February 2021:
- From peak in March 2022: -17.1%
- Year-to-date: -10.7%
- Decline in 10 months from peak in March 2022: -C$124,300 – going down much faster than up
- Jump to top in March 2022 in 10 months: +C$78,800.
calgary, Canada’s oil capital: The overall benchmark price rose 0.7% for the month, after seven months of decline, to C$509,900:
- From peak in May 2022: -4.2%
- Year-to-date: +6.1%
- Decline in 8 months from peak in May 2022: -C$22,300
- To peak in 9 months in May 2022: +C$68,900:
Montreal: The overall benchmark price was unchanged at C$498,000 for the month:
- From peak in May 2022: -10.4%
- Year-to-date: -5.5%
- Decline in 8 months from peak in May 2022: -C$57,600
- Jump to peak in May 2022 in 7 months: +C$71,800:
Halifax-Dartmouth: What happened was just crazy. The benchmark price increased by 81% from February 2020 to the peak in May 2022, before it started unwinding.
The overall benchmark price rose 2.1% in December to January to C$490,700, after a sharp decline late last year.
- From peak in May: -10.4%
- Year-to-date: +5.4%
- Decline in 8 months since peak in May: -C$57,100
- Jumped to peak in May in 8 months: +C$113,100:
Quebec City Area: The overall benchmark price fell 4.2% to C$304,800 for the month:
- From peak in May: -9.3%
- Year-to-date: -2.8%
- Decline in 8 months since peak in May: -C$31,200
- Jumped in 7 months to peak in May: +C$42,500:
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