June data hint worst may be over for market

Garry Marr, Finan­cial Post

New-home con­struc­tion rose for a sec­ond straight month in June in what ana­lysts say is another sign that the worst may be over for the Cana­dian hous­ing market.

Canada Mort­gage and Hous­ing Corp. said yes­ter­day there were 140,700 homes built in June on a sea­son­ally adjusted annu­al­ized basis. Con­struc­tion was up almost 8% from the 130,300 units in May.

“There are some pretty good signs that we are start­ing to see in the hous­ing mar­ket,” said Bob Dugan, CMHC’s chief econ­o­mist. “We’ve seen it for quite a few months on the existing-homes side.”

Existing-home sales rose 42% from Jan­u­ary to May across the coun­try and early indi­ca­tions are that June was the strongest month this year. Sales in Van­cou­ver were up 76% last month from June a year ago and Cal­gary and Toronto both posted 27% increases dur­ing the same period.

Existing-home inven­to­ries have begun to shrink across the coun­try, con­vinc­ing builders to ramp up con­struc­tion. CMHC said urban single-family homes — con­sid­ered the best barom­e­ter of the new-home mar­ket — climbed 7.3% in May from a month earlier.

“It’s well into sell­ers’ mar­ket ter­ri­tory again with the May and April num­bers,” said Mr. Dugan.

The opti­mism about the Cana­dian mar­ket comes despite the fact new con­struc­tion at 140,000 units is far off the 200,000-plus fig­ure the mar­ket in Canada has seen for the past seven years.

“I can only spec­u­late, but maybe a lot of peo­ple are relieved we are not see­ing the decreases we have seen in the U. S.,” said Mr. Dugan. “Peak-totrough, the decline in the U. S. was some­thing like 80%. In Canada, that would mean we’d have to have 55,000 starts. Some peo­ple may have thought that’s where the Cana­dian mar­ket was going.”

The con­sen­sus among econ­o­mists is that build­ing won’t return to pre-recession lev­els but will grad­u­ally improve in the com­ing months.

“This month’s increase is an impor­tant con­fir­ma­tion that the Cana­dian hous­ing sec­tor is past the worst and in recov­ery mode,” said Marco Let­tieri, an econ­o­mist with National Bank of Canada.

“The recov­ery seems to be broad-based, with gains observed in both mul­ti­ple [which includes con­do­minium con­struc­tion] and sin­gle units.” Mr. Let­tieri said.

Robert Kav­cic, an econ­o­mist with Bank of Mon­treal, said there could be some room for mod­est growth in starts in the com­ing months.

“Higher afford­abil­ity and improved con­sumer con­fi­dence brought buy­ers off the side­lines this spring,” Mr. Kav­cic said.

A report this week from RBC Eco­nom­ics says declin­ing prices and lower inter­est rates led to one of the biggest quar­terly improve­ments in afford­abil­ity in his­tory. The bank said monthly pay­ments on a typ­i­cal detached bun­ga­low in Canada had decreased by almost 17% from a year earlier.

Royal LeP­age Real Estate Ser­vices was also forced this week to upgrade its fore­cast for 2009 because of the improved mar­ket con­di­tions. It now expects 430,000 sales this year, an improve­ment from its pre­vi­ous call of 416,000, but still down 1% from a year ago.

“I think 2009 will go down as a mod­er­ate cor­rec­tion as opposed to the deep and sus­tained reces­sion that we had first feared,” said Phil Soper, chief exec­u­tive of the real estate company.

Royal LeP­age expects prices this year will still fall but not by as much as pre­vi­ously feared. It expects the aver­age sale price in 2009 to be $297,000, a 2% drop from last year. It had pre­vi­ously fore­cast a 3.5% decline.

Mr. Soper said a decline is still tough to swal­low after years of com­pound growth of close to 10% in the hous­ing mar­ket but it’s prov­ing to be a far cry from what has hap­pened in the United States.

“We are long way from the 35% decline that a lot of regions in the United States are expe­ri­enc­ing,” Mr. Soper said. “It’s a very dif­fer­ent kind of correction.”

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