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TD Economics

July 28, 2010


• Canadian home prices rose by 1.3% M/M (or 17.0% annualized) in May, according to the composite
Teranet-NB House Price Index (HPI). The trailing 3-month M/M annualized trend pickup up to 10.1% in
May, from 5.2% in April.

• This represents the 13th consecutive rise in the index, which tracks repeat home sales in six major
metropolitan areas across the country. (The combination of these six markets accounted for 53% of the
Canadian housing stock as of Census 2006.).

• For a second consecutive month, all six cities surveyed reported monthly price gains in May. This was
led by Ottawa, where prices advanced by 2.3% M/M. On the flipside, the smallest monthly increase was
recorded in Halifax (0.7%).

• On a Y/Y basis, Canadian home prices were 13.6% higher, showing continued price acceleration in the
annual pace after the 12.9% Y/Y gain posted in April.

• After dropping by 8.9% peak-to-trough from August 2008 to April 2009 and rebounding by 14.4%
thereafter, the Teranet HPI stood 4.2% above its pre-recession peak as of May 2010. Five of the six
markets surveyed show prices have passed beyond – in a 3% to 9% range –their respective pre-
recession peak. On the flipside, while on a steady uptrend over the last 10 months, the Calgary HPI
remained 8.6% below its August 2007 peak.

Key Implications

• While it provides an accurate picture of the evolution of specific home values over time, the Teranet HPI
lags the standard average home price tabulated by the Canadian Real Estate Association (CREA). This
is mostly because the latter is directly sensitive to the volume of sales, and sales lead prices. Given its
track record vis-à-vis the CREA average price, we expect the Teranet HPI to ease a bit but still hover in
a 10-12% Y/Y band over the June-September period before easing to a mid-single digit pace by Q4. As
such, it should help confirm that Canadian home prices are stabilizing not only on a standard average
basis, but also on an individual unit (repeat sales) basis – reflecting a market balance shifting in favour
of potential buyers.

Pascal Gauthier, Senior Economist


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