Toronto Condo & Real Estate Blog

For two months now, low interest rates have triggered buyer calls that swamp mortgage broker John Cocomile’s BlackBerry.

By Tony Wong – Toronto Star

John Cocomile can’t seem to walk a few steps before his BlackBerry starts to buzz. It’s another client trying to close on a home purchase.

“It has been like this for the last couple months,” says Cocomile, a mortgage broker and owner of popular website greedymortgage.com. “Real estate agents are normally on holiday in the summer, so everyone expected things to slow down. But, good gosh, stuff is really selling out there.”

He’s right. Canadian existing homes sales soared in June, up 17.9% year over year to 54,416 units, according to the Canadian Real Estate Association in a report released yesterday

The national average sale price also reached new heights on a monthly basis, climbing 3.6% year over year to $326,613.

On a quarterly basis, sales in the second quarter were up 1.4%, marking the first year-over-year increase in such activity since 2007.

The solid numbers beat consensus estimates by analysts and took some market watchers by surprise.

“Canada’s housing market looks to have managed the equivalent of the great escape from the clutches of a lengthy, painful downturn,” said BMO Capital Markets economist Doug Porter. “The rapid fire rebound in Canada’s housing market is the most astonishing economic development of 2009.”

Cocomile said a jump in five-year mortgage rates in June also may have been a contributing factor to the boom. Posted rates at some banks went from 3.79% to 4.49% last month.

“You have a situation now where people are saying: ‘If I don’t buy with my locked-in rates, then I’m going to have to pay more later if I don’t get something now’,” Cocomile said.

That mini-bump in demand, combined with less inventory, has put pressure on prices even though Canada is officially in recession.

Comment: Not any more. As of July 24th, the Bank of Canada declared the recession officially over.

“It has certainly lasted longer than I anticipated and prices have been more stable than I anticipated,” said CREA chief economist Gregory Klump. “We are seeing some snapback as buyers who were sitting on the fence jump into the market.”

However, analysts warned that the months ahead could be more volatile as the effects of the recession linger.

“Only a rocket goes straight up forever. There will undoubtedly be some turbulence ahead,” Klump said.

“Further gains will be much tougher to come by, particularly with the job market suffering,” BMO’s Porter warned.

The Canadian Real Estate Association has forecast a 5.2% average price decrease by the end of 2009 compared with 2008. But, based on improving conditions, the association now expects sales transactions in the second half will exceed the first half.

Analysts also expect pressure on prices to ease as more listings come onto the market in the second half.

Listings were down sharply in June, with just 4.2 months of inventory on the market so buyers had fewer choices.

This is the lowest level since August 2007, and below the peak of 12.8 months in January.

Comment: We are essentially working with 30% fewer listings than at this time last year. And this time last year was something like 17% lower than the year before. So we have maybe half the available properties we did two years ago. Unless that changes in a major way – and soon – the bidding wars and price increases are just going to continue.

The months-of-inventory figure is the time it would take to sell homes listed at the current rate of sales activity.

Although average prices are up, demand in the more expensive markets in the country such as Toronto and Vancouver was a contributing factor in skewing the numbers higher.

“The strong rebound in sales activity is skewing prices upward nationally and in some provinces. Just as a sharp decline in activity in these markets skewed the average price lower in 2008,” the association said.

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