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Drop in home prices spreads to Toronto
Tara Perkins – The Globe and Mail
The decline in house prices that has hit Vancouver is spreading to Toronto, a shift that economists say marks the beginning of a national price correction.
While many say the market has long been due for a correction, and that a healthy and gradual decline in prices is ahead, the new numbers are fuel for those who argue that federal Finance Minister Jim Flaherty’s moves to cool the market went too far this summer.
Prices in Toronto dipped 0.6% in October from September, the first monthly decline since the end of last year, according to the house price index compiled by Teranet and National Bank of Canada.
Comment: What? Your are comparing a drop of some 27% in Vancouver to 0.6% in Toronto? And drops sustained over more than a year with one seen briefly in one month? That is terrible, trying to make something out of nothing.
It comes after sales began to soften this summer, a trend that has continued. Sales in the Greater Toronto Area during the first two weeks of November were 17.5% lower than the same period last year, according to the local realtors board, which has pointed out that Mr. Flaherty’s decision to cut the maximum length of an insured mortgage to 25 years means higher payments.
Comment: And amazingly, the day after the new mortgage rules, sales volume dropped. Anyone trying to say it is NOT the new rules is crazy, stupid or lying. The evidence is clear. And it is supported by other data: the 4 months following the new mortgage rules saw sales volume drop by 12.5% to 21% while CAAMP says that 11% to 17% of past mortgage clients would not qualify under the new rules. I think I know where the sales drop is coming from, from those who cannot qualify now. It is more than clear what is going on.
A number of other cities, including Quebec City, Victoria, Ottawa and Montreal, also saw prices fall in October. Nationally, prices were 0.2% lower than in September.
Comment: And 0.2% is not even statistically meaningful.
Craig Alexander, chief economist at Toronto-Dominion Bank, said he was struck by how broad the declines were. “It’s no longer just about Vancouver.”
Comment: But that is only if you use Teranet’s very specific method of measurement. The raw data says all but Vancouver rose, with an average increase of 0.02% nationally – even more moot. The HPI shows a 3.6% increase. Pick your stats, you can make the numbers say whatever you want them to – but be sure to show them all, not just the ones you cherry pick to make your pre-conceived point.
Vancouver’s prices actually ticked up 0.1% in October from September, but remain one% below where they were a year ago.
Comment: CREA’s HPI shows Vancouver going down 0.8% so there you go. But I cannot believe we are even talking about price movements of less than 1%! That is how nit-picky we have gotten about real estate…
Nationally, house prices are still 3.4% higher than a year earlier, but the year-over-year gains have been shrinking. The data suggest that the market is shifting toward negative territory.
Comment: NO – the data suggest that price increases are slowing down. Prices rising by 3.4% does not in any way suggest that prices will go down at any point. Holy twist things Batman!
A number of economists are optimistic that, barring any significant increase in unemployment or interest rates, house prices will nudge down gradually over the next year.
Comment: Hmm… seeing as unemployment just fell 0.2% last month, does that mean prices are going to rise? I also see one of my mortgage broker is offering a 2.89% 5-year rate – which is lower than before. So both interest rates and unemployment went DOWN – how does that fit into your disaster scenario?
“We are starting to see the beginning of a negative trend in the housing market in Canada, but I think it will be a gradual and somewhat controlled slowdown,” said Canadian Imperial Bank of Commerce economist Benjamin Tal. That’s the outcome that Mr. Flaherty and Bank of Canada Governor Mark Carney are hoping for, as they’ve sought to take some of the froth out of the market now to prevent a crash down the road, and to keep consumers’ mortgage debt levels in check.
Comment: The new mortgage rules did the exact thing the 3 previous changes did not do – slow things down. Where we settle is still up in the air. Do we flatten, do slow the increase and keep rising, do we drop? We need at least a year to know for sure.
Marc Pinsonneault, an economist at National Bank who works on the Teranet-National Bank national house price index, said that if the data are adjusted for seasonal factors, then home prices were flat in October compared to September. But even that is newsworthy, he adds. (While the average price of houses sold can be influenced by a shift in sales towards certain neighbourhoods or types of homes, the Teranet-National Bank Composite House Price Index seeks to account for that by, among other things, only including homes that have changed hands at least twice in their history and have not been renovated.)
“We wouldn’t be surprised to see prices in Toronto down 5% from where they are at the moment at the end of 2013,” he said. However, prices have risen 6.4% in the past year. “We think it will be a price decline consistent with a soft landing of the resale market,” Mr. Pinsonneault said.
Comment: So even with a 5% drop in 2013, it will be 1.4% higher than 2011. I still think we will see a flattening until spring when things will jump again and we ill return to 3-6% annual increases (which is really only about 0-3% after inflation, nothing really). Like the Toronto land transfer tax, people will just get used to the new mortgage rules.
But some economists, and a number of real estate industry players, say the softening could be more severe and protracted than desired. This week, Will Dunning, the chief economist at the Canadian Association of Accredited Mortgage Professionals, said he thinks Mr. Flaherty’s rule changes are jeopardizing the health of the market and the economy, and will continue to have an impact for years to come.
“Home prices have held up so far, prompting economists to declare a soft landing,” David Madani, an economist at Capital Economics who has long been predicting a 25% national price correction, wrote in a note Wednesday. “But we think this is premature.”
Comment: The key is that they have been LONG predicting it… and it has not happened. Nor is it going to happen. I could shout from the rooftops about a 25% price spike to get my name in the paper too – doesn’t mean it will happen.
Data from RealNet Canada Inc. Wednesday showed that 2,792 newly constructed homes were sold in October, the second-lowest sales for that month for the 13 years on record. Of those, 1,914 were condominiums. The Building Industry and Land Development Association, which represents developers, blames Mr. Flaherty for the decline.
Comment: Really? You are yet again taking one month and using it to create a whole new trend that reverses the past decade? Really?
“In an attempt to cool down the market, the federal government has severely affected the building and development industry in the GTA,” CEO Bryan Tuckey said in a press release. “The introduction of stricter mortgage regulations has triggered a decline in new home sales, and if this trend continues, it will affect job creation in the coming years, restricting economic growth.”
Comment: No, it won’t. We will just drop from almost 100,000 sales to something in the mid 80,000 range. And the 5 years before 2011 saw sales in the 81,000 to 87,000 range – and we were not seeing jobs disappearing all over the place with slow economic growth. Quite the opposite. Everyone needs to tone down the hyperbole just a LITTLE bit.
The softening prices, coupled with rising household incomes, has made homes slightly more affordable, according to Royal Bank of Canada. “Despite the improvement, the latest readings still point to slightly greater-than-average affordability pressures in Canada, with such imbalances being somewhat more intense in the two-storey home segment,” RBC says in a recent housing affordability report.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Price gains slow across the country
Report shows gain of 11.6% in six cities
Canwest News Service
The latest home-price index from National Bank of Canada, done in partnership with real-estate technical-services provider Teranet, shows prices far ahead of where they were a year earlier, though monthly gains are slowing.
The Teranet-National Bank home-price index showed home prices among six major markets up 11.6% overall in March from a year before, up from annual gains of 9.9% in February and 7.5%in January.
The report said the widening year-to-year gap was largely due to the decline in home prices in the early part of 2009, an effect that carried through to April.
On a monthly basis, prices were up 0.3% in March. In February, they were up 0.2%, and gains for these last two months for which data is available mark the slowest pace of price gains in almost a year.
“The … slowing of monthly gains is consistent with a general loosening of resale-market conditions across the country,” the report said. “For some months now, homes have been coming on the market faster than they have been selling.”
The year-to-year gains have been largely influenced by prices in Toronto and Vancouver, which were up 15.5% and 14.4% respectively, from a year earlier in March. Other markets, which include Calgary, Halifax, Montreal and Ottawa, saw gains of less than 8%.
Calgary had the lowest year-to-year gain at 2.7%. It was also the only one with a monthly decline, with prices down 0.3%. It was the city’s third straight month of lower prices.
The Teranet-National Bank index is based on prices for homes that have sold at least twice. The survey does not provide specific sales figures.
The Canadian Real Estate Association also issued a report, saying that while prices are slowing, no one should expect a downturn like that seen in the United States.
CREA acknowledged that rising Canadian home prices in recent history have outpaced the growth of incomes, and some “stabilization” in the real estate market is due to allow incomes to catch up.
“This ratio [of incomes to home values] will revert to its long-term average as it always does as part of a normal housing-market cycle,” said Gregory Klump, CREA chief economist. “History suggests, however, that it will not do so by means of a significant correction in home prices.”
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Ready for less heady home pricing?
Tony Wong – Toronto Star
Home price appreciation will slow in the Toronto market this year as a looming supply of new homes is completed, giving consumers more choice and helping to mitigate future gains, a bank study said.
“The stock of new construction is rising and that will have the effect of slowing any price increases,” National Bank of Canada senior economist Marc Pinsonneault said Tuesday.
Toronto prices were up 4% at the end of 2009, with sales rising 17% year over year, as homes sold in an average of 23 days, the shortest interval in recent history.
However, a record number of completions this year will help bring more listings to the market. Move-up buyers, meanwhile, are expected to put more homes up for sale, alleviating the supply crunch.
Given those factors, the bank echoes other analysts who say price appreciation likely will be much slower, or flat line this year.
“Certain factors lead us to believe the price growth will slow soon,” said Pinsonneault in the bank report on real estate.
“The number of homes on the market has been mounting since November and could continue to do so. Recent price increases and the current tight conditions on the resale market have stimulated housing starts … Once these dwellings are completed and enter the market, they will reduce the scarcity of available homes.”
Shaun Hildebrand, senior market analyst for Canada Mortgage and Housing Corp. estimates 36,000 condominiums are under construction for Toronto alone. Another 7,000 single-family homes were being built at the end of 2009.
“The big question is how many of them were purchased by investors who are going to put them back on the resale market by flipping them,” said Hildebrand.
New home sales in the Greater Toronto Area were on a tear in the second half of 2009. In December alone, sales rose fivefold from a year earlier, when the recession took hold. Overall, 2009 sales were 28% higher than in 2008.
In the condo sector, investors are back in the market buying smaller units, Hildebrand said.
Buildings sold in 2006 and 2007 are finally being completed this year due to a construction backlog. “It was difficult to get labour, then many of the buildings are more complex and taller, and then you had a credit crunch,” Hildebrand said.
CMHC said the highrise sector will be more affected by the new supply and the lowrise sector by increased resale listings.
With homeowners staying put due to economic uncertainties, many fixed “their homes up under the renovation tax credit.
“Now they’re likely to be putting their homes on the market this year.”
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Contact the Jeffrey Team for more information - 416−388−1960
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