Teranet index reverses 3 month decline, posts positive monthly gains in December

The Teranet Index is an index used to calculate house price increases by using a paired-sales methodology similar to that of the Case-Shiller index in the US.  It provides an alternate view of the current state of the housing market.  Unfortunately, it is consistently 2 months behind as the data takes longer to process.

After posting 16 consecutive positive monthly readings stringing back to the end of the recession, the index began falling in September of 2010 and continued falling for 3 months.  However, the most recent reading, released today, indicates that the Teranet index posted a 0.3% m/m gain in December.

From Teranet:

“The 12-month gain in the composite index slowed in December to 4.1%. It was the sixth month in a row of deceleration. Halifax was the only market to show an acceleration of its 12-month rise, to 8.5% in December from 2.7% in November. The 12-month increase was 4.0% in Toronto, 5.1% in Vancouver, 6.3% in Ottawa and 6.4% in Montreal. Calgary prices were down 2.9% from a year earlier, for a third consecutive month of 12-month deflation.”

Meanwhile TD chimed in on the sustainability of the December reading:

“The housing market has owed much of its success this year to the continued improvements in affordability and willingness of Canadians to take on additional debt. However, going forward this is unlikely to persist.

Going into 2011, mortgage rates are at rock-bottom levels and indebtedness is at an all-time high. With the Bank of Canada set to resume hiking rates by mid-year, the housing market will be the first to feel that pinch. Moreover, the fact that affordability has been good to so many homebuyers so far speaks volumes as to what kind of demand will remain when borrowing conditions do normalize.”

Indeed it is becoming obvious to all that the strong demand for housing has largely been in the form of demand that has been pulled forward.  With demand destruction  now in the cards in the form of tightening mortgage standards and higher interest rates, just who will sustain the necessary demand will be the key question beyond mid March.




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