A run down of what's going on in the market and the company.

Sunday, February 28, 2010

'Reckless' speculators get a cold shower

Steve Ladurantaye
Globe and Mail
Wednesday, Feb. 17, 2010

Bruce Johnstone can spot them the minute they start talking – real estate speculators who are only interested in flipping a property at the first sign of a capital gain.

As a broker at Keller Williams Ottawa Realty Ltd., Mr. Johnstone deals every day with well-heeled investors looking to sink some of their cash into real estate. Right now, there are so few residential properties available in the city that he has a dozen investors on a waiting list, each hoping to buy small apartment buildings.

Investors say all the right things as they sit across from him; they were burned by the stock market and want to put their money into something long-term that will also churn out some cash. Speculators make their intentions equally clear; they prefer to buy with as little money down as possible, and pay scant attention to pesky details such as the state of the ductwork and vacancy rates.

“They just want to get as much leverage out of their money as they can,” Mr. Johnstone said.
Whether they are called investors or speculators, such buyers are a key target of the federal government's reforms to the mortgage market.

Ottawa's decision to increase the minimum down payment required to obtain Canada Mortgage and Housing Corp. insurance on investment homes to 20 per cent, from just 5 per cent, will have a sizable impact, said Craig Alexander, deputy chief economist of Toronto-Dominion Bank, because these properties account for up to 15 per cent of all new mortgages.

“Raising the requisite down payment could be a significant deterrent to making the investment,” he wrote in a report. “The actions announced by the government for non-owner-occupied dwellings significantly reduce the risk of speculation driving the market forward.”

Finance Department officials explained that the change won't apply to borrowers who buy principal residences that also include some rental units.

“This will discourage the kind of reckless real estate speculation that can drive prices to unsustainable levels which does not serve Canadian home buyers,” Finance Minister Jim Flaherty said.

The measure, one of three new rules introduced by the government, is likely to have an immediate effect, said Royal LePage chief executive officer Phil Soper.

“That will take a significant number of transactions out of play and I don't think that's a bad thing,” he said.

“There definitely will be some in my industry who are not happy with the change, because deals that made sense yesterday won't make sense today. People will need to find more money to get their foot in the door, and many will choose just to keep that cash in their pocket.”

Canada Mortgage and Housing Corp. offers mortgage loan insurance on various types of real estate, including duplexes, condominiums, owner-occupied properties, manufactured homes and properties requiring renovations. The insurance protects the lending institutions from defaults, and ensures cheaper financing for the consumer.

At the same time, Mr. Flaherty acknowledged that even though most lenders already ask mortgage-seekers if they plan to live in the home they're trying to buy, they're not always sure they get an accurate response. The new rule is “not easy to administer but it's not impossible either,” he said.

This has some suggesting in the industry suggesting CMHC should get out of insuring investment properties altogether.

“CMHC isn't in the business of helping businesses prosper through investing in real estate,” said Mr. Soper.

“Their goal is to help Canadians own a principal residence. Their role should be muted, and so it seems rational to make these changes.”

Flaherty bubble burster

Feb 18 2010,Toronto Star

Federal Finance Minister Jim Flaherty says there is "no clear evidence of a housing bubble" in Canada, but he is taking "proactive" steps anyway. The package of measures he announced this week to restrict mortgage lending has been applauded by the banking sector.

However, one part of the package could put a damper on the economic recovery, particularly in Toronto.

At issue is Flaherty's new requirement of a 20 per cent down payment (up from 5 per cent) to obtain CMHC insurance for "non-owner-occupied" residences, mainly condos. Flaherty said the move was necessary to curb "speculators" in the real estate market.

But those same speculators (or "investors," as the housing sector calls them) are providing much of the market – up to 40 per cent, by some estimates – for new condo buildings in Toronto and other big cities. Accordingly, the builders have expressed alarm at the move and suggested it would negatively impact condo developers across Canada. "There had been no prior consultation with our industry on this matter, nor is there evidence that condo speculation constitutes a problem requiring such down payment restrictions," said Gary Friend, president of the Canadian Home Builders' Association.

Friend also pointed out that the new restriction would adversely affect the supply of rental housing, since non-owner-occupied units are generally leased out.

The housing sector is already bracing for a body blow on July 1, when the new harmonized sales tax comes into effect.

One way for Flaherty to mitigate the impact of the new down payment requirement, then, would be to heed the home builders' call for Ottawa to match the more generous sales tax rebates being offered by Ontario and British Columbia for buyers of new homes.

Thursday, February 18, 2010

Canada not immune to downward pressure on housing prices

David Rosenberg
Published on Thursday, Feb. 18, 2010 12:00AM EST
Last updated on Thursday, Feb. 18, 2010 11:17AM EST

Canada not immune to downward pressure on housing prices
The landscape bears an eerie resemblance to the U.S. real estate market in 2005-06

The hot Canadian housing market is now likely to burn even brighter in coming months.

Expect a rush of sales activity as buyers look to get in ahead of new CMHC guidelines that kick in on April 19, just in time for the seasonal spring selling period.

Then we have the harmonized federal and provincial sales taxes in British Columbia and Ontario kicking in on July 1, adding more distortion.

And of course, the speculation is that the Bank of Canada will begin to raise interest rates some time in the third quarter.

So if there are any Canadian homeowner wannabes still sitting on the fence, look for them to hop in during the next few months - then expect a swan-dive in the second half of the year, right when the central bank is widely expected to start tightening.

While there may be a healthy debate as to whether there is a bubble or not in the Canadian housing market, suffice it to say that residential mortgage balances relative to disposable income just hit 92 per cent, which is exactly where this ratio was in the U.S. in 2005 when the mania was about to morph into a full-fledged bubble. It was barely a year later that the process of mean reversion began its course.

The Vanier Group just conducted a study showing that the price of an average home is now five times the size of average household after-tax income, which is 35-per-cent higher than the long-term norm. Remember - the word "norm" is not the guy sitting at the bar at Cheers but is short for "normal."

As prices inevitably normalize, it is hard to see the Bank of Canada tightening the policy screws as the primary asset on the consumer balance sheet deflates.

Meanwhile, that process of normalization is much further along south of the border - it seems prudent to not lose sight of the lessons being learned there.

A mere 3 per cent of respondents to the most recent University of Michigan consumer sentiment survey see housing as a solid investment. This is well below the 24 per cent who thought so back during the bubble days when the homeownership rate hit record highs of nearly 70 per cent as the boomers increasingly viewed real estate as a retirement asset instead of what it really is - a place to live and raise your family.

The aspect of housing supply that no one understands yet is that everyone wishes they still lived in the house that they sold to buy the one they now own. This is especially the case for U.S. baby boomers.

They bought their oversized home during the bubble years because they believed that the price would always go up; there would always be liquidity and they really wouldn't need to pay off the loan out of earned income. The mortgage would be retired at the closing table and they would walk away with a big cheque.

That was why they bought a house that was much larger and more opulent than they really envisioned themselves living in during retirement. It was half dwelling and half investment.

At the margin, the boomer population may not be as attached to the status quo as some think - now it wants to rid itself of a depreciating asset, and even more critically, get rid of the debt and the maintenance expenses. This is why the selling pressure has been so intense in the homeownership market in the U.S., and don't think for a minute that Canada won't see a similar development as the demand boom here subsides as government support wanes in the intermediate term.

As we have already witnessed in the U.S., selling pressure in real estate is far worse than the selling pressure on consumer durables because this housing asset tends to have a voracious appetite - it is both highly leveraged and yet highly illiquid. Since sales are still so difficult to transact, U.S. lenders are entering into deals that keep families in their homes. This is a new reality.

If it's not loan modifications, then it's foreclosure short sales and deeds-in-lieu. Three years into the housing crisis, and we have only recently begun the process of principal reduction to fully reflect the plunge in home prices from their bubble highs. Those deals will have to reflect a big enough writedown and rate concession to keep people in houses they don't want.

As society tries to get small, the marginal transaction is driven by sellers who are liquidating debt. I am pretty sure that the bottom line is that all of the buyers are going to be operating against a backdrop of a much bigger supply of sellers than anyone is currently thinking about. That is why supply and demand will take many years, not quarters, to come into true balance.

In other words, the deflation cycle in U.S. residential real estate is far from over. And while Canadians feel fortunate to have escaped the awful experience of a bubble burst in housing, considering that the degree of leverage, homeownership rates and home price overvaluation is not altogether that far off what the U.S. landscape looked like back at the bubble peak in 2005-06, I wonder what the future holds?

Real estate set for rise ahead of new rules

By Steve Ladurantaye
From Thursday's Globe and Mail

Real estate set for rise ahead of new rules

But a buying frenzy may be around the corner as new borrowing rules and tax regimes re-energize sales
A rush of home buyers trying to beat higher taxes and tighter mortgage regulations could pump up the housing market just as it's showing signs of cooling.

The real estate market pulled back slightly in January after its record run, although both sales and prices were up sharply from the depressed levels of a year ago.

Economists believe, however, that home buyers will push to beat new regulations, unveiled this week by Finance Minister Jim Flaherty, which come into effect April 19.

They also think that there will be a rush to beat the new harmonized sales tax in Ontario and British Columbia later this year.

That could lead to a spike in sales in the spring, followed by a sharp pullback and lower prices in the second half the year, but nothing that would crater the market.

An increase in supply as owners were enticed to list their homes by high prices, and a slight ebbing of demand as consumers realized things were getting a little too pricey, led to a decrease in month-over-month sales in January for the first time since December, 2008.

The 2.8-per-cent decline was small, but comes as market watchers anxiously track the market in search of an asset bubble.

The federal government moved this week to curtail speculation in what has been a red-hot market.

Are we in a housing bubble? Share your thoughts at The Globe's forums

It also made it more difficult for home buyers to qualify for mortgages unless they can meet more stringent criteria such as down payments.

The Canadian Real Estate Association said Wednesday that while "one car doesn't make a parade," the market may have peaked in December as consumers took advantage of low rates and buyers who stayed out of the market during the depths of the recession finally closed deals on new homes.

"The monthly decline reflects waning pent-up demand," said Gregory Klump, chief economist at CREA. "You're also seeing continued price increases eroding affordability. It's actually unfolding exactly as we predicted."

Much of the bubble speculation has been spurred by dramatic year-over-year numbers, such as the 58-per-cent sales boost seen in January from last year.

Prices also saw a sizable gain, up 19.6 per cent from a year ago to $328,537. And while many economists expect the average price to keep rising as consumers flood into the spring market to take advantage of looser rules and avoid the new harmonized sales tax in British Columbia and Ontario, they expect the second half of the year to signal the start of a slowdown.

"Things could really heat up in the near term and then cool off in the back end of the year," said Scotia Capital economist Derek Holt.

That would be good news to buyers such as Isabelle Philippe, who has been frustrated by frequent bidding wars in Toronto. She feels she has been priced out of the market. "I'd like to buy something before the taxes are higher and any new changes are introduced. My salary isn't that much, so if there's a bidding war I just don't bother any more. I'm still looking, but I'm not as eager as before and I'm hoping if I wait, prices will go lower."

Gas prices drive inflation to 1.9 per cent

Michael Babad

Globe and Mail Update
Published on Thursday, Feb. 18, 2010 7:08AM EST

Last updated on Thursday, Feb. 18, 2010 10:20AM EST


Cars – and everything about them – drove up consumer prices in January at the fastest pace since late 2008.

Overall annual inflation, the so-called headline rate, rose in January to 1.9 per cent from 1.3 per cent in December, Statistics Canada said Tuesday. That marks the sharpest increase since November, 2008, and is just shy of the Bank of Canada's 2-per-cent target.

On a monthly basis, prices rose 0.4 per cent from December, the federal statistics gathering agency said.

While six of the eight components in the consumer price index rose, vehicles, and what makes them run, were by far the biggest culprit. Gasoline prices rose 23.9 per cent from a year earlier, while insurance premiums jumped 7.7 per cent. The purchase price of the vehicles themselves rose 3.1 per cent. That's notable in that it marks the first time since June, 2007, that vehicle prices have increased on a year-over-year basis.

A closer look at gas prices shows a dramatic regional effect. Overall inflation rates were highest in the eastern provinces, according to the Statistics Canada data, driven by sharp increases in fuel costs that ranged from 26.5 per cent in Newfoundland and Labrador to 35.6 per cent in New Brunswick. Inflation rates ranged from 3.1 per cent in Nova Scotia to 4 per cent in Prince Edward Island.

The Bank of Canada's core inflation reading, meanwhile, which excludes volatile items and guides the central bank's monetary policy, jumped to 2 per cent from 1.5 per cent in December, though economists don't believe this will affect Governor Mark Carney's pledge to hold interest rates at historic lows until at least midyear.

“While Canadian headline inflation has accelerated in recent months and core prices popped in January, look for inflation to slow over the next two months,” said BMO Nesbitt Burns economist Benjamin Reitzes. “Indeed, the Bank of Canada's latest forecast for 1.6 per cent year over year inflation in [the first quarter] is still attainable despite the hotter figure. The inflation story remains the same, with a strong Canadian dollar and significant spare capacity helping keep both headline and core inflation in check, which should allow the bank to hold to its commitment to keep rates steady until the end of June.”

When energy is factored out, consumer prices rose 1.3 per cent year over year, compared to 0.8 per cent in December, Statistics Canada said.

Food prices were also up in January, by 1.4 per cent, though that was the slowest pace since April, 2008 and was largely due to higher costs at restaurants and for non-alcoholic drinks. Prices also rose for health and personal care, recreation and education, while costs for shelter fell.

Flaherty moves to cool mortgages

Jeremy Torobin, Tara Perkins and Steve Ladurantaye

Ottawa and Toronto — Globe and Mail Update
Published on Tuesday, Feb. 16, 2010 8:17AM EST

Last updated on Wednesday, Feb. 17, 2010 9:32AM EST


Many Canadians will be forced to scale down their real-estate ambitions under new mortgage rules that aim to both keep people from taking on too much debt and rein in speculators, all without knee-capping an industry that has been a major driver of the recovery.

The tighter standards come after months of debate about whether a bubble is forming in the housing market and repeated urging by policy makers for borrowers and lenders to be prepared for higher interest rates.

The changes, announced Tuesday by Finance Minister Jim Flaherty, are designed to keep Canadian consumers from becoming perilously overstretched, and deter speculators from buying houses solely as investments. Observers and industry players said the steps aren’t likely to smother the broad strength in the housing market, where eager buyers often armed with hefty mortgages have bid up prices sharply over much of the past year. The Finance Minister said he was unveiling the measures now, before the need for them becomes more urgent.


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“There are no definitive signs of a housing bubble,” Mr. Flaherty told reporters in Ottawa. Nonetheless, “we’re being pro-active,” he said, to “help prevent negative trends from developing.”

Starting April 19, all new borrowers will have to meet standards for five-year, fixed-rate mortgages even if they’re seeking a shorter, variable-rate loan. Also, the government is lowering the maximum amount Canadians can withdraw when refinancing to 90 per cent of the value of their homes, from the current 95 per cent, and requiring a 20-per-cent down payment for government-backed mortgage insurance on “speculative” investment properties.

Measures considered but rejected included an increase to the minimum down payment on homes from 5 per cent, and shortening the maximum time over which borrowers can spread out their payments from the current 35 years.

According to an analysis by Toronto-Dominion Bank, the requirement that new buyers be able to afford the posted five-year rate – which is currently about 5.4 per cent – will “temper” demand somewhat because about a quarter of new mortgage applications might not pass that test. Still, the impact will be “constrained” because many will just buy a lower-priced property instead.

The effect of the stricter refinancing rule should be limited, TD said, since less than a third of those modifications involve owners with loans of between 90 per cent and 95 per cent of the home’s value. TD also praised the measure on speculative purchases, saying, “for a housing bubble to form, speculative buying would be a major contributor.”

Tim Hockey, head of TD’s Canadian banking operations, said Ottawa found a good balance between doing too much and doing too little.

“It’s pretty difficult to figure out what the right balance is; this feels about right,” he said, even though he acknowledged prices could go down because the tighter rules might increase the supply of houses available for sale.

At the moment, TD assesses whether customers seeking three-year variable rate mortgages would be able to afford the monthly payments on a three-year fixed-rate mortgage.

Scotia Capital economist Derek Holt said tighter criteria for mortgage applications could cause the housing market to “really heat up” over the next few months before cooling later, predicting “short-term price scrambling” as buyers try to get approved before the stricter rules come into force.

Mr. Holt noted that the Harmonized Sales Tax or HST due to take effect in Ontario and British Columbia on July 1 is already causing some buyers to rush into the market in a bid to close deals in advance.

Mr. Flaherty stressed that some lenders are already applying more stringent standards when approving buyers, but said today’s announcement was needed to ensure others start doing so. He said the rules are meant to “have some stabilizing effect” and encourage “moderation” in the market so Canada can avoid the “excesses” that led to the subprime meltdown in the United States.

With files from reporters Bill Curry and Rob Carrick in Ottawa and Tavia Grant in Toronto

Friday, February 12, 2010

Canada's top bankers are pushing the government to clamp down on the mortgage market to cool off the rise in home prices.

Boyd Erman and Tara Perkins

From Saturday's Globe and Mail
Published on Saturday, Feb. 06, 2010 12:00AM EST

Last updated on Friday, Feb. 12, 2010 3:01AM EST


Canada's top bankers are pushing the government to clamp down on the mortgage market to cool off the rise in home prices.

The heads of the country's six largest banks have privately told policy makers that they fear the wide-ranging economic fallout of a U.S. style binge-and-collapse in housing. To head off any chance of that happening, they are willing to accept tighter rules on mortgages that would slow the real estate market, even though it would mean forgoing some short-term profits from giving out ever bigger mortgages as home prices jump.

The chief executives of the Big Six made their point last November, when they met with Bank of Canada Governor Mark Carney. The country's top commercial bankers, who between them control more than three-quarters of the country's $940-billion mortgage market, said then that they wanted the government to look at far-reaching options, such as raising the minimum down payment to as much as 10 per cent and shortening the maximum amortization period to 30 years.

Mr. Carney didn't disagree, according to people familiar with the November talks.

"We're talking about being pre-emptive here," said a senior bank executive who spoke on condition of anonymity. "We're not in a bubble yet, or a credit crisis."

Changing the rules would be a relatively simple, sensible, proactive thing to do, said a top executive at a second major bank.

However, the real key is convincing Finance Minister Jim Flaherty.

The government, not the central bank, sets regulations on the length of amortizations and the size of down payments, and bankers realize that no politician will score points with voters by making it more difficult for Canadians to buy homes.

Mr. Flaherty publicly mused in December about acting if a bubble appeared "in the future," but with house prices rocketing higher in recent months, those pushing for change don't want him to wait.

The average resale price of a home in Canada was $337,410 in December, according to data from the Canadian Real Estate Association. That was 19 per cent higher than in December, 2008, and sales activity has also increased sharply.

With more signs each month that gains in house prices are accelerating, there are indications the government is considering a move.

In recent months, the Department of Finance has canvassed the mortgage industry for ideas on whether tighter mortgage rules are needed, and if so, what would be appropriate. Government officials have held a number of meetings and discussions on the topic in the last two months.

That has led to pushback from some in the mortgage industry who argue that stiffer amortization and down payment rules for all buyers could undermine the housing sector and hurt Canadians by causing the values of their homes to drop.

Some of those opponents of big changes have suggested to the government that it consider more targeted rule changes, if Ottawa feels that something needs to be done.

That could mean only tightening up the requirements for people with weak credit scores, or for people who are buying an investment property rather than a home to live in.

Mr. Flaherty will not say whether he will act. He reiterated his view there is "no clear evidence now of a housing bubble in Canada."

That view is shared by Canada Mortgage and Housing Corp., which said in an e-mailed statement that while some analysts and commentators say there's a house price bubble forming, "it is not clear that this perspective is supported by the facts."

Nevertheless, Mr. Flaherty is "actively monitoring the housing market and a variety of issues in that context," the minister said in an e-mailed response to questions.

"I have policy tools available to take action to counter negative trends. I have used some of them before and can use some or all of them again."

One of the most powerful tools would be what the banks suggested: tightening the criteria for getting a home loan that's insured by one of the country's mortgage insurers - a sector dominated by government-owned CMHC.

The federal government already did so in 2008, eliminating no-down-payment mortgages.

In almost all cases, a home buyer in Canada who is placing a down payment of less than 20 per cent of the home price must have the mortgage insured.

Getting mortgage insurance from CMHC or one of its competitors now requires a 5 per cent down payment, and the maximum amortization period is 35 years.

CMHC sells an estimated 75 per cent of mortgage insurance in Canada.

Thanks to rising home prices and surging sales, CMHC has about $480-billion of insurance in force.

As a result, the company has become "the rule maker, in the mortgage market, said Peter Routledge, an analyst at Moody's Investors Service who recently wrote a report suggesting the government look at shortening amortizations and raising down payments to protect the banking system.

"To the extent that the rule makers in the mortgage industry inject a little conservatism, I don't think the banks would look at that as a bad thing," Mr. Routledge said.

In fact, that's exactly what the bank CEOs urged when they gathered on Nov. 25 with Mr. Carney in Toronto's financial district, where the central bank has an office.

While some of the bank executives were more vocal than others, none disputed the idea that it would be wise for Ottawa to take action, according to people familiar with the discussions.

Higher required down payments and shorter amortizations would curb housing prices by cutting the amount most Canadians could bid for a house.

Such changes would also mean smaller mortgages and lower interest payments over the life of the loan - in other words, less money for the banks.

Canadian mortgages account for 40 per cent of the loans of the six largest banks, and comprise the biggest chunk of their portfolios.

The bankers' effort is all the more notable given the unique structure of the Canadian mortgage business. Banks get the profits from mortgages with their decades of interest payments, but have little risk of direct loss because of mortgage insurance.

Consumers cover the premiums and, because most mortgage insurance is underwritten by CMHC, the federal government ultimately takes the risk.

It's not the potential of big losses on mortgages that scares banks, says Mr. Routledge of Moody's. But if there were a spike in foreclosures in Canada, as has happened in the United States, consumers would likely struggle to make payments on other loans that aren't insured, such as credit card debt. Such a situation would also likely cause a big economic slowdown.

"Imagine instead of a few hundred people in Toronto in any particular month being foreclosed upon, it's a few thousand," said Mr. Routledge.

"The impact on the broader economy and the overall level of consumer confidence is significant in the U.S."

Mr. Carney, who said again this week that he too believes there's no bubble, has raised concerns about the level of debt that consumers are taking on.

He has said that interest rates are likely to rise in coming years, and warned that banks should not be lulled into complacency by the fact that mortgages are insured.

But a number of voices in the mortgage industry caution that a dramatic change to the rules could put too much of a damper on the market, and possibly be more damaging to the economy than the problem Ottawa is trying to avoid.

Much of the population's net worth is tied up in their houses, and the concern is that if tighter rules caused home prices to fall, consumers would rein in their spending.

"Some people talk about 10 per cent down payments, and we would have serious concerns with that," said Jim Murphy, head of the Canadian Association of Accredited Mortgage Professionals.

CMHC has already increased its vigilance when it comes to approving insurance, said mortgage planner Robert McLister.

"These days, if a deal remotely smells funny, or an appraisal is slightly unrealistic, it's shot down without hesitation. There is such an aversion to defaults in our market."

Should the government decline to move, the banks could always try to tighten lending standards on their own. But that might not have the desired impact because are many other providers of mortgages.

"Even though we're in an oligopoly, every mortgage has a dozen bidders on it," said Mr. Routledge.

***

The tale of Canada's housing market

Residential mortgage debt as a percentage of personal disposable income has been rising since the early 1980s.

But thanks to lower mortgage rates, the debt service ratio - a measure of how well Canadians can afford their monthly interest payments - was trending downwards until a couple years ago.

And since the banks losses on mortgages in Canada are so small as to be insignificant, they have steadily continued to dole out more in mortgages each and every year.

Meanwhile, the country enjoyed unusually strong growth in home prices this decade. After a brief drop in late 2008, house prices resumed their upward trajectory, catching bankers and economists off guard and separating Canada's housing market greatly from the experience in the U.S.

Tara Perkins

Monday, February 8, 2010

Resale housing forecast extended to 2011

OTTAWA – February 8, 2010 – The Canadian Real Estate Association has revised its forecast for home sales via the MLS® Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010. Annual activity in 2010 is forecast to be well above the previous year’s level as a result.

CREA forecasts national activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent a new annual record, standing 1.2 per cent above the previous peak in 2007. Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

National home sales activity is expected to remain strong in the first half of 2010, fuelled by low interest rates and homebuyers motivated to avoid the HST before it comes into effect in Ontario and British Columbia. Over the second half of the year, national activity is expected to trend downward as the last of pent-up demand is exhausted, interest rates begin rising, and the HST comes into effect in Ontario and British Columbia.

Interest rate increases will contribute to weaker national sales activity in 2011. National home sales activity is forecast to decline 7.1 per cent to 490,100 units in 2011, putting it on par with annual levels reported in 2005 and 2006.

“Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand,” said CREA President Dale Ripplinger.

The national average home price is forecast to climb 5.4 per cent in 2010, reaching a record $337,500, with average price gains forecast in all provinces. The national average price increase will continue to reflect upward skewing from the rebound in activity among Canada’s priciest markets, particularly in British Columbia and Ontario.

The national average price is forecast to ease by 1.5 per cent in 2011. Modest average price gains are forecast for all provinces except British Columbia and Ontario, whose share of national activity is expected to ease. The shift in the contribution made by provinces toward national activity will continue skewing the annual comparison in the national average price in 2011.

The price trend is similar but less dramatic for the weighted national average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national average price is forecast to climb 4.8 per cent in 2010, and remain stable in 2011.

“Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009,” said Chief Economist Gregory Klump.

“Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years, especially if the U.S. economic recovery proves to be weak and protracted,” said Klump.

“The Bank of Canada will need time to gauge the effect of interest rate increases on Canadian economic growth,” Klump said. “It recognizes that consumer debt burdens are running high, so it will want to gauge the impact of interest rate hikes on domestic demand and overall economic growth. Changes in interest rates impact the economy with a lag, so the timing and magnitude of interest rate hikes will be tricky, given that the Bank expects the private sector to lead economic growth once temporary government stimulus spending expires,” he added.

“The decline and subsequent rebound in sales activity for homes in the upper price spectrum in some of Canada’s priciest markets skewed average prices upward in the second half of 2009 and into 2010. This segment of housing activity in Ontario and British Columbia is expected to ease beginning in the second half of 2010, causing average prices to moderate in those provinces,” said Klump.

“A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S.”

CREA News

Saturday, February 6, 2010

Sales Start Off Strong in 2010

February 3, 2010 -- Greater Toronto REALTORS® reported 4,986 transactions through the Multiple Listing Service (MLS®) in January 2010. This result represented a large increase over the 2,670 sales in January 2009 when the home sales were in a recessionary trough. Last month’s sales were slightly higher than the January average in the five years preceding 2009.

“The GTA housing market has rebounded well from the lows in sales experienced at the beginning of 2009. Sales climbed back to healthy levels across the GTA because the cost of home ownership remained affordable in the Toronto area,” said TREB President Tom Lebour. “Increasingly confident consumers moved to take advantage of affordable home ownership.”

The average home selling price in January 2010 climbed 19 per cent to $409,058, compared to 343,632 in the same month last year.

“Expect strong annual growth rates for existing home sales and average price through the first quarter as we continue to make comparisons to the weak market conditions at the beginning of 2009,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “The rate of sales and price growth will be lower in the second half of 2010.”

Median Price
In January, the median price was $350,000, from the $303,000 recorded during January of 2009.

Source: Toronto Real Estate Board