Despite jump in house sales this spring, ‘there is more downside than upside risk to home sales and prices,’ Scotiabank says

By Virginia Galt – Globe and Mail

The brief spring rally in the Canadian housing market – although encouraging – cannot be regarded as the beginning of a full-fledged recovery just yet, the Bank of Nova Scotia said in a report Tuesday.

Still, the Canadian market is not at risk of collapsing, as the United States market did after the subprime crisis, and Canadian homeowners should see the values of their properties start to appreciate again next year when the economy begins to stabilize, Phil Soper, chief executive officer of Royal LePage Real Estate Services Ltd., said in an interview.

Mr. Soper said Canadian housing sales will likely cool again this summer, as they typically do after the spring selling season, and will pick up again in the fall.

“We still feel there is more downside than upside risk to home sales and prices,” Bank of Nova Scotia economist Adrienne Warren said in a research paper on real estate trends.

“The significant deterioration in domestic labour markets in recent months suggests little prospect for a major resurgence in demand in the near term. Meantime, a still-high level of active listings relative to underlying demand will continue to pressure prices,” Ms. Warren said.

Supporting the view of economists that the Canadian real estate market is far healthier than the U.S. market, Century 21 Canada issued a report Tuesday that compared housing prices in major Canadian and U.S. cities with similar economies and geographies.

“When you compare …so-called ‘twin cities’ you see some dramatic differences,” Century 21 president Don Lawby said.

For instance, prices are significantly higher and the market is much stronger in Toronto than in Chicago, Century 21 said.

“In Toronto, the average price declined 4% to $394,099 and the median price dipped only 2% to $325,000 [in March]. In Chicago, the average price fell 34% to $249,901 and the median price dropped 39% to $180,000. It took an average of 37 days to sell a house in Toronto, compared to 168 days in Chicago.”

Similarly, price levels are significantly higher and selling times are shorter in Calgary than in Houston, Century 21 said, citing average Calgary prices of $380,737 in March, compared with $200,233 in Houston.

And according to new figures from the Calgary Real Estate Board, that trend appears to be continuing. The median price of residential dwellings increased by $1,000 between March and April – to $341,000 – because of firming sales of single-family homes, the Calgary Real Estate Board reported.

Prices for Calgary condominiums, on the other hand, continued to weaken, with the median price down 3 per cent, to $251,000, month over month.

Dan Sumner, an economist with ATB Financial Services, said Tuesday that it appeared first-time home-buyers were cushioning the blow to the housing market caused by the general economic malaise.

“As we enter the busy spring buying season, the true health of the Calgary housing market will become more apparent,” Mr. Sumner wrote.

“Although prices and sales activity have been stable during the past few months, some further weakness is not out of the question,” he said.

The Toronto condo market is also experiencing a slump, but appears to have avoided “the worst-case crash scenario and …the Toronto condo market is expected to stay grounded until a sustained economic recovery takes hold,” Toronto-Dominion Bank economist Pascal Gautier said in a research report Tuesday.

The Canadian Real Estate Association recently reported “a healthy pickup in home sales nationally in both February and March, beyond the typical seasonal bump, albeit off decade lows in January,” Ms. Warren noted.

“Preliminary reports suggest this firming trend continued in April. Buyers, especially first-time buyers, are being lured by historically low mortgage rates, greater affordability and increased supply.”

This has provided some bounce to the resale market.

However, in contrast to the pickup in sales of existing homes, “residential construction is being reined in even faster than anticipated, with builders quick to respond to falling prices, rising inventories and greater resale competition,” Ms. Warren said.

Housing starts slipped to a 10-year low of 139,000 units, on an annualized basis, in the first quarter of this year and residential permit demand has slipped even further, to around the 125,000 unit mark, she said.

Scotiabank has revised its forecast for the number of Canadian housing starts this year to 140,000 units, down from its February forecast of 155,000.

Ms. Warren said in her report that the rise in demand, combined with fewer new listings, has restored a better balance to the national housing market.

“The bridge between buyer demand and housing supply is continuing to narrow, which, as we see, helps bring stability to home prices,” Mr. Russell said. “The trends in our housing market in the last couple of months offer a much more comfortable, historically normal set of conditions.”

On Friday, Statistics Canada will release its labour force survey for April. Economists expect the unemployment rate to rise to 8.3% from 8%; job losses are forecast to come in at 50,000.

In the Toronto condo sector, the competing forces of rising unemployment and greater affordability will likely cause markets to “remain quite choppy between now and the end of the recession, as two important forces run in opposite directions until then,” Mr. Gauthier wrote.

“On the one hand, employment and incomes will continue to slump until the economy recovers next year, and this will weigh on home and condo demand directly as well as indirectly through overall consumer confidence,” he said.

“On the other hand, better affordability allows many homeowner households to upgrade and many potential new homebuyers to jump in,” Mr. Gauthier said.

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Contact Laurin Jeffrey for more information  –  416-388-1960

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