More froth yet in Canada’s housing market

More froth yet in Canada’s housing market

Some economists and observers are predicting the market will get even hotter in coming months ahead of new government regulations designed to make it harder for a homebuyer to borrow.

Some economists and observers are predicting the market will get even hotter in coming months ahead of new government regulations designed to make it harder for a homebuyer to borrow.

Photograph by: iStock, iStock

Existing home sales declined on a monthly basis for the first time in more than a year but it may only be a temporary decline as new government regulations are expected to boost the spring market.

The Canadian Real Estate Association said Wednesday January sales nationally were down 2.8% on a seasonally adjusted basis from December, the first time activity has fallen in 13 months. Despite the decline, January 2010 sales were 58% higher than a year earlier.

“January results suggest that the national resale housing market may be past the recent peak,” said Gregory Klump, chief economist with CREA.

“One car doesn’t make a parade, so a few more months of results showing a cooling trend will be required before talk of a Canadian housing bubble begins to fade. It could take until the second half of the year before a cooling trend becomes evident since home buying activity may continue to be accelerated in the first half of 2010 by expected interest rate increases, and by the introduction of the [Harmonized Sales Tax] in Ontario and British Columbia on Canada Day.”

Prices across the country continue to climb: Year-over-year gains are more impressive because of the dismal housing market a year ago.

CREA said the average sale price last month was $328,537, a 19.6% increase from a year ago. However, January 2009 prices were almost at a three-year low.

Supply across the country continues to be constrained. CREA said there were 179,199 homes listed for sale on the Multiple Listing Service at the end of January, an 18% decline from the same month a year ago.

CREA said there was only 4.4 months of inventory in the system based on the present paces of sales. That’s up from 4.2 months in December.

Some economists and observers are predicting the market will get even hotter in coming months ahead of new government regulations designed to make it harder for a homebuyer to borrow.

The federal government is introducing new rules that will force homebuyers to qualify for mortgages based on the five-year fixed rate, as opposed to the variable rate.

The gap between the two is expected to mean buyers will have to show more income to get a loan. The government is also only going to allow homeowners to refinance their homes for 90% of their value.

A third measure, demanding investors seeking government-backed mortgage default insurance have 20% of their down payment before they purchase an investment property, is expected to have more of an impact on the new-home market and condominiums.

Millan Mulraine, an economics strategist with TD Securities, sees the decline in sales in January as an exception.

“We do think the lull will be brief considering the regulatory changes. Homebuyers affected by this are going to jump in while the going is good,” said Mr. Mulraine.

By the second half the year, most commentators predict a more balanced market as the combination of higher interest rates, the new HST and regulatory changes kick in.

The realtors association is calling for sales to drop by 7.1% in 2011 and prices to fall by 1.5%.

“All signs suggest that the market will start to simmer down later this year, although likely only after another burst of activity this spring,” said Doug Porter, an economist with Bank of Montreal who agrees the market should slow in the second half of 2010.

“By then, the bubble chatter should fade,” Mr. Porter said.

gmarr@nationalpost.com

Posted via web from Toronto Real Estate News | Blog

Advertisements

About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: