Blog

A little better balance is coming to Canadian home resale markets

0 1090 Market Intelligence

Alex Carrick

Positions:
Alex Carrick is Chief Economist for Reed Construction Data. He specializes in economic forecasting and statistical services.

Economists

Existing home owners in Canada have recognized an opportunity and reacted accordingly. The number of new listings in the first quarter of this year (233,402) has been an all-time record for the first three months of any year, according to the Canadian Real Estate Association (CREA).

Existing home owners in Canada have recognized an opportunity and reacted accordingly. The number of new listings in the first quarter of this year (233,402) has been an all-time record for the first three months of any year, according to the Canadian Real Estate Association (CREA).

The resale market in the U.S. continues to be vastly overstocked due to bank foreclosures. In Canada, however, resale residential real estate activity is continuing at a strong pace.

Statistics Canada recently released a report saying that Canada’s latest recession was relatively mild. The following sums it up. The U.S. presently stands 8.2 million jobs below its previous employment peak in December 2007. Canada’s decline is only 250,000 jobs versus fall 2008.

The latest figures on existing home sales offer another look at how Canada is doing better than the U.S. Helping to bring forward activity in this country have been tougher mortgage qualification rules just coming into effect and pending HST introductions in Ontario and B.C.

Dollar volume resales in first-quarter 2010 Canada-wide were +72% versus first-quarter 2009. The provinces have been led by British Columbia (+95%), Ontario (+86%) and Quebec (+53%).

Average prices in Q1 2010 versus Q1 2009 were +18.2% for all of Canada. Ontario recorded the sharpest rise (+20.2%), followed by B.C. (+19.1%), Newfoundland (+17.8%) and Nova Scotia (+12.3%). Manitoba (+10.8%) and Quebec (+10.5%) also recorded double digit percent gains.

New listings in units were 14% higher this year in the first quarter than in the same three months last year. As for the individual month of March, unit listings in 2010 were 25% higher than in March 2009. For buyers, more listings are important because they help to stem price advances.

Seasonally adjusted existing home sales in 2010’s first quarter were down 3.4% versus an outstanding fourth quarter of last year. This still left them the fourth highest on record.

Keep in mind that the recession was at its worst in the first quarter of last year. Residential resale markets were deeply depressed. That quickly changed with the spring 09 selling season. The Bank of Canada’s efforts to keep interest rates at record lows paid off by stimulating buyer demand. Therefore, year-over-year comparisons – with respect to dollar volumes, unit sales, unit listings and average prices - will become more subdued as this year progresses.

Since the Bank of Canada’s target overnight rate remains 0.25%, the low interest rate effect is still playing out. However, the nation’s largest private banks have already implemented two mortgage rate increases. The commercial banks say they have to pay more to raise funds, plus they anticipate the Bank of Canada will act soon to tighten monetary policy, by July at the latest.

Looking ahead with respect to the resale market, length of time to sell is expected to stretch out and rising home prices plus higher costs, including mortgage rate increases, will lower affordability. The hot resale market will return to a simmer in the second half of 2010.

As for the new home construction market, it has been nowhere near as distressed in Canada as in the U.S. Single-family dwelling starts are finally beginning to pick-up south of the border, but the multiples market remains very weak. It was the multi-unit/condo market in resort areas of the country where the most severe speculation and overbuilding occurred. The toll has been heavy.

In Canada, new home starts are back up to the 200,000-unit level after falling as low as 115,000 in April 2009. As resales taper off in the fall, new home starts will be reined in a bit as well.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News. Mr. Carrick also has a lifestyle blog that can be reached by clicking here.

by Alex Carrick

Leave a comment

Or register to be able to comment.