Housing boom is finally ending – #Toronto #realestate

Housing boom is finally ending

 

After a frenzy of buying in late 2009 and early this year, the pace  of home sales has fallen sharply. July sales were down by 30 per  cent from the level a year earlier, reported the Canadian Real  Estate Association yesterday.

After a frenzy of buying in late 2009 and early this year, the pace of home sales has fallen sharply. July sales were down by 30 per cent from the level a year earlier, reported the Canadian Real Estate Association yesterday.

MONTREAL – After a boom that lasted for most of the past two decades, Canada’s housing market is very likely heading into a period of stagnation.

The latest figures on home resales tell the story, although you need to read them carefully.

After a frenzy of buying in late 2009 and early this year, the pace of home sales has fallen sharply. July sales were down by 30 per cent from the level a year earlier, reported the Canadian Real Estate Association yesterday.

But in spite of the sharp drop in demand, prices have been slow to weaken. Even if some markets, notably high-priced Vancouver, Calgary and Toronto, are seeing price declines, they’re still up significantly from a year ago.

The average home price in big Canadian cities was 7.4 per cent higher in July than a year earlier, the CREA calculates.

Still, as demand remains weak month after month, it’s likely that Canada’s average home value will edge down in the coming year, then recover at only about the same pace as inflation -roughly two or three per cent -for a few more years.

A detailed forecast from Grant Bishop, an economist with the Toronto-Dominion Bank, estimates that housing is overpriced by 10 to 15 per cent in Canada after the recent surge in demand sparked by rock-bottom interest rates.

These high prices -heavily influenced by Vancouver and Toronto -have squeezed affordability. At the same time, interest rates are rising gradually and the country’s two biggest markets -Ontario and British Columbia -just doused buyer enthusiasm by applying their harmonized sales taxes to new housing. So Grant expects the average Canadian home price to fall by nearly 10 per cent during the coming year.

But that’s not a good guide to how much the price of any individual home would fall, he hastens to explain. It’s merely the numerical average of home prices across the country, unadjusted for the hugely disproportionate influence of high-priced markets in British Columbia and Ontario.

Here’s how this works: the average home price in Canada today is $330,000, but there are huge variations across the country. Vancouver’s average is more than $650,000, about double the national average, while in Montreal it’s a little over $300,000, or below the average.

So when home sales in Vancouver fall sharply, as they have recently, they drag down the average a great deal by removing a lot of expensive properties from the numbers. The volume of sales in Montreal, meanwhile, fell much less, giving its cheap properties greater weight in the national average.

As a result, the national average price -already down by five per cent -doesn’t mean much unless you adjust the numbers to reduce this distortion.

As well, looking at such month-to-month changes in flawed statistics -which is how Bishop estimated his near-10-per-cent drop -isn’t meaningful in estimating how a particular home might be affected.

A better way is to look at your own region, where the conditions are fairly homogeneous. Then, think about how the average price for all of 2010 compares with the forecast average for 2011. This removes a big distortion and smooths out the statistical noise.

It also leaves us with a far less frightening view of this phenomenon.

Nationally, Bishop’s forecast is for average prices for all of 2011 to fall by about three per cent compared with 2010. (In 2010, they’ll still rise by just under 10 per cent, because the gains early in the year won’t be offset by the weakness later).

And for those living outside British Columbia and Ontario, the picture is still better.

These two regions will take most of the hit, falling by 3.4 per cent and three per cent respectively, since their prices are the most overvalued.

But in Quebec, average home prices are forecast to ease by just one per cent on average in 2011, with a similarly modest drop in most of Atlantic Canada. And the Prairies, with their resource rebound attracting new residents, could actually see some tiny gains, Bishop said yesterday.

After next year, the forecast of stagnating prices for a few years sounds about right, believes another economist, Douglas Porter of BMO Capital Markets, but he doesn’t see this as a big deal.

After all, he noted, even in the relatively tame Montreal market, the value of a home has jumped by nearly 150 per cent in the past decade, so most homeowners are still sitting on very substantial gains.

jbryan@thegazette.canwest.com

 

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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

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