Tag Archives: real estate market
Jim Flaherty on home sales dive
‘I don’t mind prices coming down a bit, too’
Tara Perkins and Sean Silcoff – The Globe and Mail
The way Jim Flaherty sees it, his July changes to Canada’s mortgage rules are having the desired effect on the housing market.
“Well, yeah,” the finance minister told The Globe and Mail. “I don’t mind prices coming down a bit, too.”
Mr. Flaherty’s comments Tuesday followed new numbers showing Canadian home sales posted their fastest year-over-year decline in December since he tightened mortgage rules in July.
Sales of existing homes over the Multiple Listing Service fell 17.4% in December from a year earlier, and were down 0.5% from November, according to the Canadian Real Estate Association.
The MLS Home Price Index, which seeks to factor out changes in the types of homes being sold to get an indication of underlying prices, rose 3.3% from a year earlier. That’s the slowest growth since April of last year.
“Successive rounds of tightening mortgage regulations have kept the housing market in check during what has become an extended low interest rate environment,” said CREA chief economist Gregory Klump.
Having said that, the impact of the new rules are probably fully priced into the market now, said Toronto-Dominion Bank senior economist Sonya Gulati.
Comment: And now that we see sales and prices rising in January, can we all just admit how strong the real estate market is? Every rule change has tightened things and made it harder for the marginal people to get in. Yet it keeps going. We keep trimming the fat, and it keeps going. And as we weed out the longer amortizations, the higher re-finances, the hard-to-qualify – this means that those who do buy are more and more able to do so.
Economists at TD went through the data last year in an attempt to quantify just how much of an impact Mr. Flaherty’s four rounds of rule tightening were having.
Comment: Easy, in Toronto it cut the bottom 10–20% out of the market.
In a report in September, they concluded that the changes had a significant permanent drop in housing demand, but “while home prices took an immediate hit following the rule changes, they bounced back within two or three quarters and continued to grow faster than underlying economic fundamentals.”
Comment: But it is a permanent drop from the record highs of 2011. Figures will still be on the high side, in line the the 5-year trend before 2011. And those figures are quite high from a historical perspective.
Blame interest rates.
Now, “with the whopping 17.4% year-over-year change in sales seen in December, we suspect that the impacts from the mortgage rule tightening in July are now fully priced in,” Ms. Gulati said Tuesday. “We expect the Canadian housing market to stabilize at current levels over the next few months.”
Comment: More likely is that they will rebound slightly to a level somewhere between the highs and lows. Expect to see sales levels in the range they were in 2010 or so.
Indeed, Royal Bank of Canada economist Robert Hogue pointed out that listings declined by more than sales in December, and that should lend some support to prices now. The number of newly listed homes fell 1.3% from November.
Comment: Of course, sellers see action slipping, so they pull out to wait and see where the market heads. Now that it is heading back up, there will be more listings – leading to more sales and thus higher prices.
The MLS Home Price Index has been declining for six months on a month-over-month basis, and there have been fears that those declines will accelerate.
Comment: But they never did. They stayed roughly the same month over month.
“But now if supply is adjusting to the lower demand, this may guard against this acceleration of the decline,” Mr. Hogue said in an interview.
He has been of the opinion that the impact of Mr. Flaherty’s latest round of rule changes, which included cutting the maximum length of insured mortgages to 25 years from 30, would only be temporary.
“We’ll get the answer in the coming months,” he said.
And if the sharp declines in year-over-year sales end, and sales flatten out or even pick up a bit, the measures will have run their course, he said.
Ms. Gulati said the sales-to-listings ratio and the number of months of unsold inventory are well within the normal range.
“However, when we compare prices to other standard metrics like price-to-income, we still believe that prices have deviated from underlying economic fundamentals,” she said. “With this in mind, house prices will likely resume their trek downwards once higher interest rates come into effect in the fourth quarter of 2013.”
Comment: Yet now the BoC is saying rates will not rise, due to a slower than predicted economy.
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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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Toronto home sales slip
The Canadian Press
Toronto home sales in July slipped 1.5% compared with a year ago as sales of condominium apartments fell 10%, the city’s real estate board said.
Comment: And yet again, someone needs to explain that sales always dip in the summer. The past few years have been crazy, so we have all forgotten what normal is. But fewer sales through the summer months, when people are away, is totally normal. Let’s see what happens in the fall – in things do not take off as usual, then we have a problem.
Overall, the board reported Friday 7,570 homes sold last month compared with 7,683 a year ago.
Comment: And things do need to be put in perspective – people are calling for the collapse of the Toronto real estate market over 113 sales. Take a moment and think about, 113 fewer sales does not signify an entirely new housing market trend.
Sales of condos slipped to 1,753 for the month, as detached and semi-detached home sales dropped 2% and 4%, respectively. Townhouse sales jumped 15%.
Board president Ann Hannah said new mortgage lending guidelines and the additional cost of the Toronto land transfer tax prompted some to put their buying decision on hold.
Comment: Could be the new mortgage rules, though they truly affect maybe 5% of buyers. More likely is the summer weather. or both.
“Very strong annual sales growth in the first half of 2012 and an earlier peak in sales this spring compared to 2011 help explain more moderate sales this summer,” Hannah said in a statement.
Comment: True enough, there were a LOT of sales in the first part of the year.
In Toronto, the average selling price in July was $476,947, up 4% from a year ago, while the MLS home price composite index was up 7.1% year-over-year.
Comment: As long as prices keep rising, we are not turning to a buyers’ market. But if sales continue to slide as listings rise, we may actually see something chance. But for all of you waiting for prices to fall, since 1966 there have only ever been 4 years where prices fell – all related to the bubble of the late 1980s and recession of the early 1990s.
New listings totalled 13,888 for the month, up from 12,407 a year ago.
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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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Average house prices don’t tell the whole story
There are better indicators to glean market trends
Tom McFeat – CBC News
When someone asks how house prices are doing in a particular neighbourhood, the question seems easily answered.
The big real estate boards all issue monthly price reports that spell out what the average selling price was in the previous month and how that compares to the month, and the year, before.
But there’s a problem with trying to divine market direction from average price data. It’s just too blunt a tool.
If real estate — as the saying goes — is really about “location, location, location,” then average prices frequently don’t capture the reality of what’s going on in a particular city or neighbourhood.
Calculating the average house price is as simple as adding up the prices realized for all home sales in a particular month and dividing by the number of sales. The problem with that metric begins to emerge, however, when one or more parts of the housing market don’t act in tandem with all the other segments, as they seldom do.
For instance, what happens if the percentage of really expensive homes sold drops more than it does for other types of homes? That could lead to a big drop in the average selling price, even though the price of more moderate homes may be little changed.
That exact scenario played out with the release of the June sales figures from the Canadian Real Estate Association. Among the ocean of figures CREA released was the fact that the average resale price across the country that month was down 0.8% from the same month a year earlier.
It left the impression that prices in the Canadian housing market had dropped compared to the previous year.
It turns out that the national average price dropped only because Vancouver’s pricey real estate market had 28% fewer sales this June than it did in June 2011.
Exclude Vancouver from the national figures and CREA says the average national selling price last month actually rose 3.2%. In fact, CREA reports the average home price in June was higher year-over-year in 70% of the local markets it looked at.
Average price data within cities are also vulnerable to a shift in the sales mix.
What if a huge batch of low-priced condos are snapped up one month? That would send the average price lower, even though the resale market for other types of housing may not have budged at all.
So it comes as no surprise that economists who analyze the real estate market hate averages.
“Averages are a horrible place to go,” says Tsur Somerville, who heads up the Centre for Urban Economics and Real Estate at the University of British Columbia.
Gregory Klump, the chief economist at CREA, agrees. Using average prices is “like looking in a funhouse mirror,” he warns.
Finding the median price, which involves ranking all sales from top to bottom and finding the sale price that’s in the middle, is a bit better, Somerville says, but it’s still flawed methodology. Like average prices, the median fails to take into account changes in buying patterns.
Economists say there are more sophisticated methods that give a better sense of market trends than either averages or medians.
1. The hedonic approach
More than 15 years ago, the MLS developed its own home price index to get a clearer picture of price trends. It uses a complex statistical model to measure the rate at which housing prices change over time by tracking price changes in “typical” homes in each market. Each neighbourhood has a typical benchmark home.
CREA, in addition to providing average home price data, also releases MLS home price index data for five major markets: Greater Vancouver, the Fraser Valley, Calgary, the Greater Toronto Area and Montreal. Sixteen additional markets are slated to be added in the future.
“If you really want an accurate measure of what’s going on with home prices, you’ve got to keep the quality of the homes constant,” says CREA’s Klump. “That’s what the [MLS home price index] does. It compares apples with apples over time. It’s not subject to a change in the sales mix the way average and median prices are.”
What difference do the different approaches make? In Vancouver, for instance, the average selling price in June was $701,141, down 13.3% from last year. But using the MLS home price index methodology, Greater Vancouver prices actually rose year-over-year by 1.7%.
2. The repeat sales method
This method of tracking home prices looks at how the price of the same house changes over time, so that only properties with at least two sales are entered into the mix. The assumption underlying this process is that each selected property’s overall quality remains constant.
Given the high rate of renovations, that can be problematic, but the statistical models attempt to account for that.
The Teranet-National Bank home price index is the best-known example of the repeat sales method in Canada.
“The statistics work out the problem that not every house sells every year,” says Somerville, who uses data from both the MLS and the Teranet-National Bank home price indices to track market trends.
In the U.S., the widely tracked Case-Shiller home price index uses the repeat sales method, too.
3. Other methods
Somerville cites a couple of other indicators to track housing price trends.
The Royal Lepage house price survey is a quarterly look at seven types of housing in dozens of neighbourhoods across Canada. The values are estimates of fair market value in each of the surveyed locations, based on local home price data and knowledge of local housing market conditions provided by Royal Lepage real estate agents and brokers.
“In theory, it should be problematic, because it’s a survey,” says Somerville. “It’s not based on actual data. But it moves very well with the higher quality statistical data.”
Some market watchers also look at the sales-to-new-listings ratio. Currently, it’s at 51.7% nationally and has been trending down. Anything over 60% is considered a sellers’ market, with anything below 40% being a buyers’ market.
Somerville also looks at sales activity. “Changes in sales tend to lead market conditions,” he says. “So when sales are declining, that’s the best sign of a weakening market, although price declines don’t have to follow. You can get prices flat-lining; they don’t have to decline.” Cooling market
Currently, the number of sales in most markets in Canada is slowing. Overall, CREA reports 4.4% fewer sales in June than a year earlier.
At the same time, year-over-year prices aren’t retreating in most markets, at least yet. But the recent tightening in mortgage regulations could change that and it could show up as early as August, when sales and price figures for July are released.
“We do anticipate that some first-time buyers will be priced out of the market,” Klump says.
These days, the operative words among Canadian housing market watchers seem to be “slowing” and “cooling.”
“The cycle of eroding affordability followed by softening home prices has begun in some regions and will be felt in many parts of the country by year-end,” Royal Lepage CEO Phil Soper forecasts. “Home prices cannot grow faster than salaries and the underlying economy indefinitely.”
Somerville says that of all the housing markets in Canada, Toronto is the one that bears watching. “If I was concerned about a market, I’d be more concerned about Toronto, because the level of building activity has been very, very high there,” he says, referring to the the boom in condo-building.
“You see supply levels being very high by historic standards in terms of construction,” he says. “I’m not saying things have to go sour; I’d just be more concerned [about Toronto] than elsewhere.”
—————————————————————————————————–
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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