Goodbye, sellers’ market
By Virginia Galt – Globe and Mail
After a long run of rapidly rising prices, the Canadian real estate market has cooled to the point it is no longer a sellers’ market, Toronto-Dominion Bank says.
“The long-awaited end of the Canadian real estate boom has occurred, reflecting more moderate demand and increased supply of properties for sale,” TD economists Craig Alexander and Pascal Gauthier said in a report yesterday. “The year-over-year price growth for existing homes in Canada’s major markets fell to only 1.1% in May from 8.6% just four months earlier.
“The trend has been broadly based, but it has been particularly sharp in some of the markets that had experienced the most dramatic price growth. Calgary and Edmonton home prices in April and May fell to below year-earlier levels.”
The economists said they had expected the slowdown to occur before now, but “real estate remained stronger for longer than we anticipated,” largely due to new financing options, such as no money down or extended amortization.” Regional economic strength related to the commodity boom also helped to fuel “unsustainably elevated real estate price growth in the west,” they wrote.
Last month, the Canadian Real Estate Association reported that resale home listings across Canada rose 17.7% in April from a year earlier, with the number hitting a record high.
The TD economists forecast modest national average price growth of 2% this year and 3.5% in 2009, “down substantially from the 10% annual pace of the last six years.”
However, the Canadian real estate market remains fundamentally strong, unlike the U.S. market, where the National Association of Realtors reported yesterday that median home prices continued to fall. The median price of an existing U.S. home sold in May was $208,600 (U.S.), down 6.3% from a year earlier. In Canada, the TD economists forecast an average existing-home price of $313,300 (Canadian) in 2008, up 2% from last year’s average.
Canadians, the TD economists said, are “cashing in, not foreclosing. “… It should be stressed that the rise in listings does not reflect homeowners of principal dwellings desperate to sell, and this is the dominant difference between the Canadian and U.S. experience,” they wrote in their report, Canada’s Housing Boom Comes to an End.
“Canadian consumers are nowhere nearly as leveraged through their home equity as American consumers are.”
Throughout the rest of this year and 2009, most regional housing markets in Canada “will see low to mid single-digit gains, but Saskatchewan and Manitoba will continue to post double-digit gains in the near term, followed by a significant cooling in 2009 – with the risk of a mild price correction in the major cities that have recently experienced extraordinary price growth,” the TD economists said.
Calgary and Edmonton prices will likely slide for another three or four quarters, falling 8% to 10% from their peak, then stabilize and start rising at a low single-digit pace, they said.
Here is the average resale home price, in 2007 and the economists’ projections for 2008 and 2009:
Ontario: $299,500 in 2007, $308,400 in 2008 and $319,100 in 2009.
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