16 Nov Housing market rebounds from trough, but will finish 2010 at more subdued pace
Housing market activity has rebounded from a trough hit in July, but sales are expected to enter the new year at a more subdued pace that is closer to normal than the revved up levels reported earlier this year.
The Canadian Real Estate Association said Monday that seasonally adjusted home sales on its Multiple Listing Service climbed 4.6 per cent to 35,714 units in October, following similar increases in August and September.
“National sales activity is now running almost halfway between the highs and lows posted between late 2008 and late 2009,” said Gregory Klump, CREA’s chief economist.
“This suggests that the Canadian housing market may be starting to normalize. After the wild rollercoaster ride that many housing markets have been on, normal and stable market conditions are something that many buyers and sellers will likely welcome.”
Housing market activity now sits 13.3 per cent above July levels — a low-point for the year when sales declined 30 per cent from a peak in the final quarter of last year.
Still, sales activity was 21.6 per cent below the record levels reported last October.
Pascal Gauthier, senior economist at TD Economics said October’s figures were indicative of a “soft landing” in the housing market.
“The last three months of data suggest that a trough in resale housing activity may have formed earlier than we expected.”
Many Canadians had rushed into the housing market during the second half of last year and the beginning of this year in advance of new mortgage regulations in April, an expected increase in interest rates and a new sales tax regime that took effect in July in Ontario and B.C.
That had the effect of pushing sales ahead into the end of 2009 and the beginning of 2010 that may have otherwise taken place in the spring and summer. It may also have lured buyers into paying more for homes than they would have without the sense of urgency.
Year-over-year prices rose incrementally in October, following a brief dip in September. However, they were up about three per cent from the month before.
Douglas Porter, deputy chief economist at the Bank of Montreal, said the market is finally approaching something closer to “normalcy” after wild swings in prices and activity over the past three years.
“Sales are still down heavily from the piping hot pace of a year ago, but they are close to average levels since 2000,” he said.
“And, prices are up just slightly from a year ago, while the inventory of unsold homes is close to typical. In other words, there’s not much here for either the wild-eyed optimists or the ranting pessimists, which is probably a good thing.”
Sales volumes for the first 10 months of the year are now down 2.6 per cent from 2009’s pace, with B.C. experiencing the biggest sales drop, followed by Alberta and Ontario.
The number of new listings on the MLS edged up 1.3 per cent in October, still 14 per cent below the recent peak reached in April 2010.
The number of new listings is normalizing to levels consistent with the reduction in sales activity, which has kept the market balanced since the spring.
The seasonally adjusted number of months of inventory — representing how many months it would take to sell current inventories — stood at 6.2 months at the end of October, down from 6.5 months in September.
Price increases are also starting to level off as a cooler sales market becomes the new norm.
The national average price for homes sold this October was $343,747, up less than a percentage point compared to one year ago. It was the fourth month the average home price was flat when compared to a year ago.
On a month-to-month basis, the average home cost about $12,000 more in October than the $331,089 reported in September. Prices reached a peak of $346,881 in May.
In October, three-quarters of local real estate boards posted monthly sales increases, led by the bustling Toronto and Vancouver markets.
However, record activity levels set in the last few months of 2009 indicate that it will be difficult to meet year-over-year comparisons for the rest of 2010.
Earlier this month, CREA lowered its home sales forecast for remainder of this year and into 2011 — projecting a 4.9 per cent slide in sales this year and nine per cent next year.
The drop is tied to lacklustre economic and job growth, weak consumer confidence and interest rate hikes that are expected to resume next year.
However, it said average home prices are expected to rise by 3.1 per cent across the country this year, reaching $330,200.
Meanwhile, a second report released Monday from Canada Mortgage and Housing Corp. said the level of home construction will continue to trend downwards in the last quarter of this year and into 2011.
“High employment levels and low mortgage rates will continue to support demand for new homes in 2011. Nevertheless, housing starts will decrease next year to levels which are more in-line with long-term demographic fundamentals,” said Bob Dugan, CMHC’s chief economist.
Construction activity lags the resale home market by several months, but tends to fall along with a decrease in demand to avoid an oversupply of new homes on the market.
The federal Crown corporation said the reduced activity will be more in line with the rate of Canada’s population growth than in the past decade when low interest rates helped stimulate pentup demand for home sales.
It’s currently estimating about 186,200 housing starts this year.
CMHC estimates that construction will begin next year on between 148,000 and 202,300 homes, or about 174,800 units at the midpoint.
As for existing homes, the CMHC expects about 438,400 units will be sold next year through the Multiple Listing Service —about 2,000 fewer than this year.
By Sunny Freeman, The Canadian Press
Pam Martin, Invis, Mortgage Broker, Best Mortgage Rates, Kelowna,Vernon, Penticton, Okanagan, British Columbia, Canada