Numbers out of the U.S. are also looking much better
By John Morrissy, Canwest News Service
The worst is over for North America’s beleaguered real estate markets, with a steady stream of data out of Canada and the U.S. indicating the recovery is at hand, economists say.
“A similar pattern in both countries is unmistakenly suggesting we’ve not only bottomed in housing, but we’re on the way back up,” said TD Bank chief economist Don Drummond.
Canada’s already brightening picture was helped along Wednesday by a report showing real estate prices in major markets across the country jumped 1.5% in June, building on May’s 2% advance.
The rebound in prices was evident even in most of Canada’s hardest hit urban real estate markets, like Toronto and Vancouver, the Teranet-National Bank report showed.
For National Bank senior economist Marc Pinsonneault, that means “the worst of home-price deflation in Canada is behind us,” he said Wednesday.
“The improvement is consistent with the huge improvement in real estate market conditions in most of the major cities in Canada,” which show.. resales rising sharply – up 18% in July alone – and listings on the decline, Pinsonneault said.
The numbers out of the U.S. are also good, at least relative to bone-jarring declines that marked the subprime meltdown and drove real estate prices 31% below their peak in 2006, Drummond said.
On Tuesday, the S&P/Case-Shiller composite index showed home prices in the U.S. also bouncing higher, for the second straight month.
And on Wednesday, the U.S. Commerce Department announced new-homes sales surpassed expectations by increasing 9.6% to 433,000 units in July, the biggest increase in more than four years and the highest level of activity in 10 months.
“The real estate market has clearly turned the corner,” BMO Capital Markets economist Jennifer Lee said in an interview.
“The items supporting a real estate recovery have been working in tandem over the past while, and they are still going strong, like the Energizer bunny.”
She credited rapidly declining inventories of unsold homes and the $8,000 US first-time homebuyer tax credit, along with the same things that have helped the Canadian market, like low housing prices, improving consumer confidence and inexpensive mortgages, for the recovery.
Though residential real estate accounts for only 5% of each country’s economies, Drummond said rising home prices boost household wealth and spending power, and carry a psychological boost to a recession-weary consumers beyond their numbers.
Renewed strength in the Canadian market was evident in four of six major markets tracked by the Teranet-National Bank survey. Vancouver posted its first price gain after 11 months of declines, up 1.6%; Montreal posted its fourth straight monthly increase, up 1.2%; Ottawa gained 2.1%; and Toronto recorded its second straight month of gains, up 2.3%.
Economists were quick to point out that while the trend has shifted, real estate markets on both sides of the border are way off previous peaks. In the U.S., for instance, about 600,000 new homes are being built annually, compared with the 2.3 million homes at the peak of the cycle.
Current conditions in Canada have created a seller’s market, said Pinsonneault, although he expects greater balance to return as higher prices draw more properties onto the market.
Mortgage rates, meanwhile, won’t rise over the next 12 month by more than 50 to 75 basis points from today’s 5.85% posted rate on fixed five-year mortgages (but mortgage brokers are offering rates as low as 4.02% with variable rates at 2.55%), he said.
One uncertainty is whether the Bank of Canada can hold lending rates steady, as promised, until the middle of next year, economists say.
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