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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