A major Canadian housing price index continued to rise in May, boosted by strong condo sales in major markets.
The Teranet-National Bank Composite National Price Index rose 1 per cent in May, following a 0.2 per cent rise in April.
“May’s rise in the Teranet-National Bank HPI confirmed the stabilization of home prices that took place since the end of last year, following a correction in [the second quarter of 2017],” writes National Bank senior economist Marc Pinsonneault, in a recent note.
Ten of the 11 markets covered by the index saw price increases last month. Vancouver and Victoria led the charge with 15.4 and 10.3 per cent increases, respectively.
The reason for the boost? A new mortgage stress test introduced in January has taken a bite out of Canadian home buyers wallets, causing a surge of demand — and prices — in the country’s condo market.
“It is true that this stabilization was accompanied by a shift of price momentum in favor of condos in Toronto and Vancouver,” writes Pinsonneault. “Given the high price level for other types of dwellings in these cities, rising interest rates and tighter mortgage underwriting standards, this shift should not be surprising.”
Pinsonneault notes that the bump in prices could be a sign that the market has largely adjusted to the new mortgage rules, after its first quarter price drop.
“In other regions covered by the Composite index, prices have regained most of the ground lost in Q1 [of 2018],” he writes.
And while it’s possible that prices could fall again later in the year, Pinsonneault writes that they’re unlikely to dip too much farther in the coming months.
“Given that interest rates are likely to continue to increase, a relapse of home prices over the next few quarters cannot be ruled out,” writes Pinsonneault. “But their resilience so far suggests that price declines would then be limited in scope.”