Sup­ply short­ages still expected in big cen­tres, but wave of new list­ings else­where will be boon to buyers

Steve Ladu­ran­taye – Globe and Mail

After a his­toric runup in prices, the Cana­dian resale hous­ing mar­ket is set to cool down as a wave of new list­ings hits the mar­ket, pro­vid­ing badly needed inven­tory for hun­gry buyers.

The num­ber of homes on the mar­ket nation­ally increased for the third con­sec­u­tive month in Feb­ru­ary on a sea­son­ally adjusted basis, accord­ing to the Cana­dian Real Estate Asso­ci­a­tion. The indus­try group said yes­ter­day there were 4.7 months of inven­tory avail­able in Canada in Feb­ru­ary, up from 4.5 months in January.

That trend has put buy­ers and sell­ers in an equi­lib­rium not seen since before the mar­ket down­turn began about two years ago. The ratio of new list­ings to sales, an indi­ca­tor used by ana­lysts to gauge the health of the resale hous­ing mar­ket, left the “favourable to sell­ers” range to the “bal­anced mar­ket” range in Feb­ru­ary, accord­ing to National Bank Financial.

It’s a sign of sta­bil­ity for a sec­tor that has seen wild price appre­ci­a­tions as buy­ers com­peted fero­ciously for the few homes on the market.

“Fur­ther expected sup­ply increases will con­tinue to take the steam out of hous­ing mar­kets as the year pro­gresses,” said Gre­gory Klump, chief econ­o­mist at the Cana­dian Real Estate Asso­ci­a­tion. “There are still a num­ber of major mar­kets where sales nego­ti­a­tions favour the seller due to a short­age of inven­tory, but sup­ply has begun rising.”

More list­ings help pre­vent bid­ding wars and could slow house-price gains this year. The asso­ci­a­tion expects prices nation­ally to decline slightly next year.

Still, some major mar­kets such as Toronto and Van­cou­ver will be slower to add list­ings this year, indus­try offi­cials said.

“You still see a sup­ply short­age in the big cen­tres because the peo­ple who need to sell and move up just don’t see any­thing they want to buy,” said Phil Soper, pres­i­dent of Royal LeP­age. “But we’re ahead of the curve on new list­ings in Feb­ru­ary, and March will be absolutely crit­i­cal if that trend is to continue.”

The Mon­day fol­low­ing Ontario’s March Break is tra­di­tion­ally the busiest list­ing day in Canada, as the weather turns favourable and par­ents who will need to relo­cate their chil­dren real­ize the school year is com­ing to an end.

“That’s the day every­one puts on their game face and gets chop­ping,” Mr. Soper said. “It hap­pens every year – it’s like the sum­mer block­buster season.”

The busy spring will have con­se­quences, how­ever. Many of the homes will be put on the mar­ket ear­lier than in other years as own­ers look to cash in on the hot mar­ket. The flurry of activ­ity is expected to dampen sales in the last half of 2010.

“I think we’ll see a sharp up-tick in sales, fol­lowed by a mas­sive pull­back,” said TD Bank econ­o­mist Mil­lan Mul­raine. “We’re tak­ing sales from the end of the year and mov­ing them up. Then you should see a mar­ket that is more in line with fundamentals.”

In the mean­time, the num­ber of home sales con­tin­ued on a tear in Feb­ru­ary with a 44 per cent year-over-year gain from reces­sion­ary lows a year ago, CREA fig­ures showed.

The aver­age price of all homes sold on the Mul­ti­ple List­ings Ser­vice in Feb­ru­ary was $335,655, up 18.2 per cent from a year ago. The relent­lessly strong price gains since last year’s lows have fuelled worry about the for­ma­tion of an asset bubble.

Finance Min­is­ter Jim Fla­herty is watch­ing the country’s mort­gage mar­ket care­fully but does not believe there is a hous­ing bub­ble, he said in an inter­view with Bloomberg.

Any­thing that helps prices sta­bi­lize would be a wel­come devel­op­ment for pol­icy mak­ers, who are tak­ing steps to make it more dif­fi­cult to qual­ify for a mort­gage in a bid to cool off the market.

While more list­ings are expected this year, buy­ers are expected to be out in full force for the fore­see­able future.

Buy­ers are expected to rush into the mar­ket in the com­ing months to avoid changes to mort­gage appli­ca­tion rules in April, antic­i­pated higher inter­est rates by mid­sum­mer and the intro­duc­tion of har­mo­nized sales taxes in Ontario and British Colum­bia in July.

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