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Brace for grim housing market news

A preview of the upcoming home sales numbers and what they mean for real estate returns


 

January home sales data had us all wonder whether the downward trip the housing market had embarked on in mid-2012 was already over. After four consecutive months of declines home resales rebounded in the first month of the year from December. Had we already hit bottom?

We hadn’t. February home sales numbers, due out on Friday, will almost certainly show that housing has resumed its southbound trajectory — and at a faster pace this time.

Source: Canadian Real Estate Association

Though figures published by the Canadian Real Estate Association will give us a more refined and complete picture, we can already tell from numbers posted by the major local real estate boards that it isn’t going to be pretty.

(As a side note, several boards noted that last year was a leap year and February 2013 was thus had one fewer work day than February 2012, which skewed year-over-year comparisons to the downside. True. But, as analyst Ben Rabidoux notes, January 2013 had one more work day than January 2012, which, by contrast, made annual comparisons look better last month.)

Data out of Vancouver is simply dismal: home sales were down 29 per cent compared to February 2012. Detached homes are leading the downfall, with sales a whopping 36 per cent below year-ago levels. Condos, normally the whipping boy of Vancouver’s housing excesses, managed to outperform the market — though that still means sales recorded a 25 per cent decline from February 2012.

Toronto managed a bit better — but not much: overall home sales are down 15 per cent and condos 20 per cent.

And February’s cooling winds also swept those areas of the market that were supposed to soften the impact of the slow-down in Canada’s biggest cities. Home sales were down 26 per cent on an annual basis in Regina and 12 per cent in Saskatoon. Even in Calgary slipped a little, with resales edging down one per cent in year-over-year terms. This doesn’t necessarily invalidate the theory that places like Saskatchewan and Alberta will cushion the impact of slowdowns in Vancouver, Toronto or Montreal — home sales, after all, are quite volatile, especially in winter — but it isn’t a reassuring set of numbers.

What are the implications for home values? Well… so far home prices have been holding up quite well. Of the cities mentioned here Vancouver was the only one to post an overall decline (-3.3 per cent in year-over-year terms). Prices movements, though, tend to lag supply and demand shifts, so we could still see a more pronounced correction later on. One worrying sign in this regard is that the ratio of homes sold to homes newly up for sale in January was woefully low — possibly indicating a supply glut.

If prices do fall, there’s little agreement on just how far they might plunge. Estimates of how much housing is overpriced vary from five to as much as 25 per cent — but home values won’t necessarily  tumble as much. The correction could just as well happen through a few years of stagnation.

That’s what economists at Toronto Dominion predict in a recent paper looking at long-term trends. They expect home prices will simply keep up with inflation over the next couple of years, and grow roughly 3.5 per cent annually after that. That would be well below the seven per cent annual rate of growth to which Canadians have become accustomed to over the past decade, but a far cry from a housing meltdown.

Mildly optimistic forecasts like TDs generally hinge on the Canadian economy being able to eek out some modest growth and being spared any major negative economic shocks. Keep your fingers crossed.

 

 


 

Brace for grim housing market news

  1. and Montreal? what are the numbers? You are aware that you have readers here, right?

  2. The roller coaster ride up is tedious… now the thrill begins on the way down!

    • Everywhere but trot

  3. Vancouver is seriously overvalued. According to the Economist it is one of the most overvalued cities in the world. It is far cheaper to rent than to buy, especially when factoring in expensive condo fees. First stage is a buildup in inventory followed by a decline in prices. This will not end well.

    • Don’t really care what happens in Vancouver, Toronto or other markets, other than my own. Real Estate is local. The press likes to whip up a frenzy and hope desperately for a bubble burst, so that they can say “we told you so”.

  4. The press writes these stupid articles jus so somebody will read the garbage they write torontos market is hot. Ask anyone who bought a house two yr ago they are laughing now. Dumb writers. Can u even afford a single detached hm on that salary?

  5. I can’t believe they actually had to do a study to figure
    this out. Just walk around Richmond and
    the most affluent areas of Vancouver and you’ll see that they are predominately
    owned by Chinese. As for Tsur
    Somerville’s comment that mortgage lending rates have had any effect at all on
    the Vancouver market, this is total garbage.
    Right now the Canadian Immigration policy is under review and this is
    the reason that Chinese investment has slowed and why Vancovuer prices are
    lower. When there are bus loads of real
    estate buyers, with bags of money showing up…..mortgage rates are irrelevant
    when you don’t need a mortgage.
    Australia has it right…..one house per immigrant family. Canadians already cannot afford to buy a
    house in Vancouver without having to drive 2 hours a day. In 10 years, they won’t be able to afford
    anything.

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