U.S. Resale Home Prices Rise; Canada’s New Home Starts Projected to Fall

02/01/2013 by Alex Carrick


The S&P/Case-Shiller existing-homes sales price indices for major U.S. cities continued their upward climb in the latest month, November 2012. The 10-city composite was +4.5% year over year and the 20-city composite was +5.5%.

The indices are based on repeat sales of the same single-family homes. They are published under an agreement between S&P Dow Jones Indices and Fiserv, Inc.

For year-over-year index comparisons, one doesn’t have to worry about seasonal adjustments. Seasonality only becomes a factor within shorter time frames such as month-to-month comparisons.

The S&P/Case Shiller indices provide a perfect example of the important role seasonality can play. For example, winter weather can be hard on prospective homebuyer “traffic”. November’s 10-city composite index was -0.2% month to month on an unadjusted basis and the 20-city composite was -0.1%.

On a seasonally adjusted basis, however, the respective changes were +0.5% and +0.6%, which were pretty decent gains. 

The +4.5% and +5.5% year-over-year increases for the 10-city and 20-city composites were among the largest since the recession. The overall level of U.S. home prices has returned to autumn 2003 levels. That was almost ten years ago, but it’s not as bad as it sounds. In the mid-00s, U.S. home prices experienced an unhealthy speculative binge, which gave way to a sharp reversal at the beginning of 2006.

The current levels of both composite indices are about 30% below their peaks in June/July 2006. On the upside, however, they are also both between +8.0% and +9.0% compared with their most recent lows in early 2012.  

Of the 20 cities monitored, only New York recorded a seasonally adjusted month-to-month price decline in November. Cleveland was flat. The other 18 cities saw resale home prices move up, with San Francisco (+2.5%) in first place, followed by Minneapolis (+1.9%) and Atlanta (+1.6%).

On a year-over-year basis, only NewYork (-1.2%) recorded a price change that was negative versus November 2011. Among the other 19 cities, there were five double-digit percentage increases. Phoenix (+22.8%) was the frontrunner, with a gain that was almost double second-place San Francisco (+12.7%). Rounding out the Top Five were Detroit (+11.9%), Minneapolis (+11.1%) and Las Vegas (+10.0%).  

S&P Dow Jones Indices summarizes the regional existing-homes price performances as follows: the Southwest and Southeast are doing much better, while the Northeast and industrial Midwest are more hesitant.

U.S. housing demand is clearly trending higher. In Canada, the expectation is that residential real estate will weaken over the next year or two. Monthly Canadian home starts have been strong for an extended period of time, often exceeding 200,000 units seasonally adjusted and annualized.

Pent-up demand has been largely satisfied and Ottawa has tightened the rules for mortgage approvals. Moody’s Investors Service Inc. has just downgraded the credit ratings of six major Canadian financial institutions, largely based on expectations of a weaker housing market.

According to Moody’s, bank profitability will be hurt by fewer mortgage sign-ups. Plus there are ongoing worries about the high level of Canadian consumer debt. By the way, even after Moody’s (relatively minor) downgrades, the ratings of our banks are still among the highest in the world.

As set out in the accompanying table, CanaData is expecting total home starts in the country to retreat from 215,000 units in 2012 to 185,000 this year.

Most of the declines will be cyclical, but there will also be some regionally-specific influences based on economic factors and population growth.

Ontario will record the largest decline in starts, as the multi-family (i.e., condo market) segment of new housing finally undergoes a correction.

Quebec, which never really participated in the housing boom, will adjust downward only slightly. The province is continuing to provide income support to existing and potential homeowners through jobs growth.

Saskatchewan’s home starts will be supported by an ongoing influx of workers to tackle major resource sector development in the province.

Alberta is still riding an investment boom in the Oil Sands, but provincial tax revenues this year will be under stress on account of low energy prices. Both natural gas and Western Canadian Select oil have been negatively impacted by the surge in shale-rock fossil fuel development south of the border. 

B.C.’s economic outlook, which is positive anyway on account of its gateway-to-Asia status, will receive further support from an improving forestry sector as stronger U.S. housing starts create more lumber demand.

Housing Starts in Canada
2011 2012 est.   2013 2014 2015
(thousands of units)
Atlantic       12.5       11.5         11.0       12.0       13.0
Québec       48.4       45.0         40.5       42.5       46.5
Ontario       67.9       81.5         64.0       66.0       69.0
Manitoba         6.1         6.0           5.5         6.0         6.5
Saskatchewan         7.0         9.0           8.0         7.5         7.0
Alberta        25.7       34.0         30.0       28.0       30.0
British Columbia       26.4       28.0         26.0       28.0       28.0
Total Canada     194.0     215.0       185.0     190.0     200.0
Source of actuals: Canada Mortgage and Housing Corporation (CMHC).
Table, estimates and forecasts: Reed Construction Data - CanaData.

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