There’s been a lot of media attention about the real estate market in the U.S. lately. So much so, in fact, that some of my customers are either getting confused about the recent reporting, or wondering if some of the problems south of the border could possibly affect us here. First and foremost, let me clarify that the influences you’re seeing at play in the United States when you turn on your TV every night are definitely not at work here. In fact, industry sources and economic forecasters say that all the positive economic drivers are in place for a continued strong market, so we’re looking in pretty good shape.

According to the Canadian Real Estate Association (CREA), there are three key economic ingredients that will keep Canada’s housing market on a different track from the U.S. One is consumer confidence, the second is employment, and third is affordable interest rates. Right now, the news in these three critical areas is good on all fronts. CREA’s Chief Economist forecasts that the Canadian housing market in 2008 will pull back from last year’s breakneck pace, but it will still be the second-busiest year on record in almost all provinces, with residential unit sales reaching an estimated 512,705 units.

The real challenge for the Canadian housing market will be the extent to which our employment situation and consumer confidence may be affected by a slowdown in the U.S. economy. According to CREA, an economic downturn in the States is expected to result in slower job growth here, but there should still be growth all the same. Despite all the media hype, the reality is that a positive employment picture, not massive layoffs are being forecast in Canada for 2008. Consumer confidence may be side-swiped by stock market volatility and reports that chances of a U.S. recession will put the brakes on the Canadian economy. However, the good news is that with continuing job growth, a low unemployment rate and the absence of widespread layoffs, consumer confidence will bounce back. The domestic economy and the housing market will weather the sub-prime fallout with the help of lower interest rates.

Whether you’re thinking of buying or selling a home - or both — you’ll be glad to know that the three ingredients for a robust real estate market are all in place and market conditions are expected to stay strong throughout 2008. If you bought a home now, forecasts call for its value to appreciate this year and next — and financing continues to be available at very attractive interest rates. If you’re thinking of selling, you can look forward to the average home price in Canada rising to record heights this year. Either way, there’s good news ahead. So why not turn those three ingredients into your own recipe for success? Make this your year to capitalize on the opportunities that are present in today’s market.

Source: Coldwell Banker

Source: Remax Condos Plus

Market fundamentals remain the same; it would seem as thought the market is actually stronger today than at the end of last year.  Forecasts for the Ontario economy suggest that growth may reach 2% this year as opposed to earlier forecasts of less than 1%.  As parts of Ontario are shrinking people are moving to the GTA for jobs and the economy will likely grow by 3%.  With rising incomes and a half percentage drop in the variable mortgage rates there are lots of buyers.  Just ask any realty firm how many pre-qualified buyers they have lined up at their door!  In fact the sales to listing ratio is currently 45% - a normal market is in the 25-35% range. 

The first sign of a changing market is when listings swamp the market; the second is when affordability is eroded.  While we’re not naïve to believe this market will go up forever, with no signs in the marketplace, we predict that the time for a slump is not this year. 

Toronto Real Estate Board reports:

GTA Resale Housing Market Moderates in May

Moderate sales and healthy price increases continued to characterize the GreaterToronto Area resale housing market during the first half of May, Toronto Real Estate Board President Maureen O’Neill announced today. “With 4,422 sales throughout the GTA in the first two weeks of this month, activity has declined 12 per cent compared to the 5,003 homes sold during the first half of May 2007,” said Ms. O’Neill. “Prices however, continue to be strong, averaging $400,817 in the GTA, up six per cent from the $377,612 reported a year ago.”

In the City of Toronto, there were 1,734 sales, representing a 15 per cent decline from the 2,053 homes sold during the first half of May 2007 and an 11 per cent decline from 006. The average price in the 416 is $437,205, up six per cent from $412,701 a year ago.

In the 905 Region, there were 2,688 sales, down nine per cent from 2,950 a year ago but up four per cent from the same period in 2006. At $377,688, the average price is up seven per cent from the $353,192 recorded during the same timeframe in May of 2007.

Despite moderate sales overall, some neighbourhoods experienced heightened activity during the first half of May. The GTA is showing signs for a healthy 2008 compared to the diminished activity during the first quarter of 2008.

The Danforth (E03) saw sales increase 29 per cent overall compared to the same timeframe a year ago due to strong detached home sales.

Interest in detached homes also led Streetsville (W20) to a five percent overall sales increase compared to a year ago.

In the Annex (C02) transactions rose 39 per cent compared to the same period a year ago, driven by strong condominium apartment and detached home sales.

Richmond Hill South (N03) saw strong sales in most property types resulting in a three per cent increase compared to a year ago.

“In recent years, homebuyers have faced a major challenge with respect to limited selection,” said Ms. O’Neill.

“Now though, inventory is up 11 per cent compared to a year ago, which has resulted in more choice for home buyers and will a positive effect on the quality of available listings.”

A wider selection from which to choose has also resulted in increased Days on Market, which has risen to 35 from last year’s 28.

Source: TREB & Toronto Star

GTA resales in decline as inventory levels surge

The spring rebound anticipated by realtors in the Toronto area market hasn’t happened – at least not yet. Existing-home sales in April were down from the record highs of last year, with 8,762 homes sold, according to the Toronto Real Estate Board in figures released yesterday.

This is the fourth-consecutive month of declining home sales. April was considered a bellwether since it was the first month of good weather after one of the coldest and snowiest winters in recent years. Most analysts had expected pent- up demand to emerge in the spring market as potential homebuyers were hampered by slush and snow in the first quarter of the year. “With affordability the lowest in 17 years, the housing market should continue to cool, despite recent declines in mortgage rates,” said Sal Guatieri, senior economist at BMO Nesbitt Burns, in a note yesterday.

Inventory, in the form of new listings, was also up significantly in April.It advanced by 18 per cent to 18,691 as sellers hoped the better weather would bring buyers out. “We’re going to have to watch May very closely as well to see if there is a trend,” said housing analyst Will Dunning.

However, Dunning said the market was fundamentally healthy and noted it is coming off record highs of 2007. Prices are still appreciating because sales still remain at historically lofty levels, even though they may be sliding. The average Toronto-area price in April almost hit the watershed $400,000 mark at $398,687, up 5 per cent from the same period a year ago. The housing market is coasting on strong job numbers and the wealth generated on the Toronto Stock Exchange over the last few years, said Dunning. “You would need a pretty big shock to consumer confidence to totally derail the market,” said Dunning. “Most Canadians so far have reason to feel good about their earnings and employment.”

Toronto prices, however, are holding up, with a consensus of analysts forecasting 3 per cent appreciation this year. “We continue to experience a supply and demand situation and to date, it remains a sellers’ market,” said Toronto Real Estate Board president Maureen O’Neill.

Sales activity was markedly different in the city of Toronto compared with the 905 region, added O’Neill. While Toronto experienced a 10 per cent drop in sales, the 905 market experienced only a 5 per cent fall by comparison. The real estate board is tracking sales in both areas because of a controversial new city of Toronto land transfer tax that took effect this year.

Mortgage Rates

Mortgage rates have moved slightly higher over the past year. This rise, in conjunction with higher house prices, has and will continue to push mortgage carrying costs higher. As a result, this will ease housing demand, particularly for first-time buyers.

Employment

A record share of Canadians continue to be employed, moving the economy close to full-employment. Accordingly, job growth should slow to rates that are more in line with overall population growth. Job creation will continue to stimulate housing demand, but not as much as in the previous years.

Income

Rising incomes will continue because of tight labour markets and a strong demand for workers. This should partially offset the negative impact of higher mortgage carrying costs on home ownership demand.

Net Migration

Net migration is expected to remain strong in 2008. Ontario, Quebec, and British Columbia will continue to attract the bulk of the international immigrants. B.C., Alberta and Saskatchewan will attract a large number of inter-provincial migrants from the rest of Canada.

Demographics

Canada’s population is aging, and as a result, a smaller proportion of people are in their child bearing years and thus the birth rate is decreasing. High immigration levels will slow the average aging of the population, however, the rate of increase in the natural population (births - deaths) is slowing. This will eventually lessen the demand for additional housing stock in the longer term.

Consumer Confidence

Consumer confidence, as measured by the Conference Board of Canada, remains positive. Furthermore, strong consumer sentiment is expected to prevail throughout the forecast period. Confident consumers will continue to support demand for home ownership.

Market Inventories

Lower existing home sales, combined with a high level of new listings in 2008, will move the resale market towards more balanced territory. As a result, the rate of growth in the average MLS® price will moderate during 2008, especially in Canada’s western provinces.

Vacancy Rates

Modest rental construction and increased competition from the condo market will be offset by strong rental demand due to high immigration and a rising gap between the cost of homeownership and renting. As a result, vacancy rates across Canada’s metropolitan centres should remain relatively stable, but slightly higher in 2008.

The Century21 Canada 2008 Spring National House Price Survey reflects the price of a typical home in communities across Canada. A “typical home” is the type of home that occurs most frequently in any given neighbourhood. The homes selected for inclusion in the survey are based on the knowledge and experience of Century21 brokers in each of the communities.

The Century21 Canada 2008 Spring National House Price Survey found that the largest price increases over the past year occurred in Saskatchewan, where jobs in the booming oil and gas, grain and potash industries are attracting record numbers of new residents. Prices for typical homes have increased over the past year as much as:

• 57 per cent to $330,000 for a modest 1,192-square-foot bungalow with three bedrooms and one bathroom in the Whitmore Park neighbourhood of Regina;
• 49 per cent to $379,000 for a 1,440-square-foot split-level with three bedrooms and two bathrooms in the Avalon neighbourhood of Saskatoon; and
• 48 per cent to $219,900 for a small 974-square-foot bungalow with three bedrooms and two bathrooms on a large lot in remote Prince Albert, a small city 140 kilometres north of Saskatoon known as “the Gateway to the North”.

Other strong markets across the country include:

• Winnipeg, where prices in the River Park South, West End and Charleswood neighbourhoods increased 19 per cent, 24 per cent and 34 per cent respectively;
• Lethbridge, where prices in Southgate, Riverstone and Uplands neighbourhoods increased 21 per cent, 21 per cent and 23 per cent;
• Castlegar, where prices in the south, north and rural areas of the city increased 16 per cent, 18 per cent and 18 per cent;
• St. John’s, where prices in the east and west parts of the city increased between nine per cent and 19 per cent; and
• Vancouver, where prices in the east, Yaletown, Kitsilano and Marpole increased between five per cent and 19 per cent.

In many communities, local conditions have produced strong, but variable price increases, including:

• Toronto, where a typical bungalow in North York increased six per cent, while a typical condo in North York increased 20 per cent. In Liberty Village, a condo increased 14 per cent, while a bungalow in Scarborough Bluffs increased 11 per cent.
• Montreal, where 11 neighbourhoods surveyed had increases ranging from three per cent for a split-level in Cote St. Luc and 11 per cent for a two-storey in Riviere-des-Prairies.
• Halifax and Dartmouth, where 12 neighbourhoods surveyed had increases ranging from five per cent for a split-level in Dartmouth Eastern Passage and 14 per cent for a two-storey in Halifax West.
• Abbotsford, where prices for similar sized bi-level homes in the central, western and eastern parts of the city increased two per cent, seven per cent and eight per cent respectively.

Softening markets across the country include:

David Wolf
From the April 28, 2008 issue of Canadian Business magazine

Could it happen here? The U.S. housing market is bad and getting worse. Builders built too much through the boom, lured by skyrocketing prices that proved as unsustainable as the lending practices that fuelled them. As in any market, the emergence of a big supply/demand imbalance requires sellers to do two things: make less and discount more. So it’s been. Housing starts have dropped 54% from their peak. Home prices are falling in every one of America’s 20 largest cities, down by an average of 13% from their peak.

The scary thing is, though, that even these dramatic declines haven’t been nearly enough to stabilize the market. The supply of unsold new homes stood at 10 months’ worth of sales in February, up from less than four months at the height of the boom. That represents the most bloated inventory levels in 27 years. The American housing bust has yet a ways to go.

Probably the most common question I get these days is, “Could this happen in Canada?” My answer is yes, it could happen here, not least because it has happened here. Canada’s housing busts have tended to be a bit more regionalized than what we’re seeing in the States, but no less profound. It took seven years for Calgary house prices to regain their 1981 peak. It took eight years for Vancouver house prices to regain their 1995 peak. It took 12 years for Toronto house prices to regain their 1989 peak.

The better question, though, is, Will it happen here? Over the long term, my answer again has to be yes — housing markets, with their long lags and sticky prices, are simply prone to this sort of boom and bust. But getting down to the heart of the matter — is a U.S.-type housing bust on the visible horizon for Canada? — my answer is no. I do think housing markets across Canada are likely to slow down ahead, but three things keep me confident that we’re not about to go off the same cliff the United States has.

First, lending didn’t get as out of hand in Canada. In 2006, 26% of new mortgages in the U.S. were to sub-prime borrowers, compared with 3% in Canada. U.S. lenders came to care less about whether the money they lent ever got paid back, knowing that the mortgages they originated would be securitized and sold on to remote investors, who couldn’t know how rotten lending standards had become. At the 2006 peak, private securitizations accounted for 47% of new mortgages in the States, compared with 7% in Canada. Second, unlike the United States, Canada doesn’t look overbuilt. We estimate that the sustainable rate of new home construction in the United States is about 1.6 million per year, based on household formation rates. Actual housing starts were above that level every year between 2001 and 2006. Canada’s sustainable rate looks to be about 180,000. Actual housing starts have been above that level for the past six years — but only after having come in below in each of the prior 11 years. Canadian builders have indeed been building too much of late, but only after building far too little through the entirety of the 1990s.

Third, house prices in Canada don’t look nearly as stretched as those in the States did (and in some cases still do), reflecting that supply and demand in the Canadian market never did get as out of whack. Our proprietary housing valuation models, driven by both affordability considerations and individual market conditions, suggest that Victoria is currently the most overvalued city in Canada, with average house prices at 23% above “fair value.” Edmonton is next, at 21%. By contrast, Miami and Los Angeles both got to more than 60% overvalued at the U.S. peak.

In short, I think conditions look good for a fairly soft landing in Canada’s housing market. The unfolding American bust might even help, as a cautionary tale to Canadian builders, buyers, lenders and regulators. Just how well the lessons are learned, however — or, more properly, how well they are relearned — will go a long way in determining how sanguine we can remain about the Canadian housing market’s prospects.

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