Real estate recov­ery ‘amazing’

Alia McMullen, Finan­cial Post

Canada’s hous­ing mar­ket has become so much more grounded since the ugly prop­erty bust of the last reces­sion that this time around it is one of the most resilient sec­tors of the eco­nomic downturn.

The lessons learned from the hous­ing bust of the early 1990s helped pre­vent Canada from being tempted down the sub­prime path that dev­as­tated the United States and, com­bined with record low inter­est rates and gov­ern­ment stim­u­lus, has caused the impact of the lat­est slump to be less severe and rel­a­tively short-lived, fig­ures released yes­ter­day underscore.

“The turn­around in Cana­dian hous­ing this year might be the sin­gle most sur­pris­ing turn­about we’ve seen in any eco­nomic indi­ca­tor I can think of,” said Dou­glas Porter, deputy chief econ­o­mist at BMO Cap­i­tal Mar­kets. “The fact we saw a lit­tle bit of a rebound isn’t a total shock, but the extent of it is noth­ing short of amaz­ing.”

Sales of exist­ing homes in June were up a sea­son­ally adjusted 8.7% from the pre­vi­ous month, mark­ing a fifth straight increase, Cana­dian Real Estate Asso­ci­a­tion fig­ures showed yes­ter­day. Sales were 17.9% higher than a year ear­lier. Resales activ­ity rock­eted along at a record pace in the sec­ond quar­ter, surg­ing by 31.5% from the first quar­ter of 2009.

Mr. Porter said the results were “galax­ies away” from the yearly decline of about 40% reg­is­tered at the start of the year.

Mil­lan Mul­raine, an eco­nom­ics strate­gist at TD Secu­ri­ties, said record low mort­gage rates were a key dif­fer­ence between the hous­ing bust of the 1990s, when inter­est rates were on the increase. The shock, the recov­ery from which took a decade, resulted in Canada intro­duc­ing tighter lend­ing stan­dards, which helped pre­vent house prices becom­ing too overblown prior to the U. S. sub­prime crisis.

Mr. Mul­raine said that while the house prices, sales and con­struc­tion suf­fered along with the rest of the recession-struck econ­omy this time around, the market’s rel­a­tively sta­ble con­di­tion and the rel­a­tive health of Canada’s bank­ing sec­tor cre­ated an oppor­tu­nity for home-buyers to take advan­tage of record low inter­est rates, more afford­able prices and gov­ern­ment stimulus.

The rise in sales activ­ity as well as a drop in new list­ings have caused the inven­tory of unsold homes to fall to 4.2 months of sup­ply — the low­est level since August 2007 and well below the peak of 12.8 months hit at the begin­ning of the year.

“Inven­tory lev­els are still high in many mar­kets, but fewer new list­ings and ris­ing sales activ­ity sug­gests that the selec­tion of homes avail­able for sale may shrink as the year pro­gresses,” said Gre­gory Klump, the chief econ­o­mist at CREA. “The sup­ply of homes up for sale needs to be drawn down fur­ther before aver­age price increases become more wide­spread among local markets.”

The aver­age price of homes sold in the month was up 1.7% from a year ear­lier, skewed higher by ris­ing demand in mar­kets such as Toronto and Vancouver.

Mr. Klump said monthly sales activ­ity would likely not con­tinue on an unbro­ken rise, but activ­ity in the sec­ond half of the year would “meet or sur­pass” the results of the first half.

Other sec­tors of the hous­ing mar­ket have also reg­is­tered improve­ments. Fig­ures from the Canada Mort­gage and Hous­ing Cor­po­ra­tion showed last week the sea­son­ally adjusted annual rate of hous­ing starts rose 8% to 140,700 in June, while Sta­tis­tics Canada build­ing per­mit fig­ures showed con­struc­tion inten­tions rose 14.8% in May. RE/Max data showed sales in both Toronto and Van­cou­ver set new record highs for June activity.

Michael Pol­zler, the exec­u­tive vice pres­i­dent of RE/MAX Ontario-Atlantic Canada, said the recent surge in resale activ­ity was due to a com­bi­na­tion of pent-up demand as a result of the hit to activ­ity at the begin­ning of the reces­sion with record low mort­gage rates and bet­ter affordability.

He said recent buy­ers had been lucky to snap up some of the best real estate deals in years, with con­di­tions now begin­ning to favour sellers.

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