Canada's Housing Bubble

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Canadian Real Estate Assoc.: Signs Of Cooling In Housing Mkt Print E-mail

Feb 21, 2012

--Resales dropped 4.5% In January From December
--Softer Sales Year Expected, No Bursting Bubble: Analysts

OTTAWA (MNI) - Canadian resale housing activity dropped 4.5% in January from December and the number of newly-listed homes declined by 1.4%, prompting the Canadian Real Estate Association Wednesday to say Canada's housing market is stabilizing.

CREA released statistics showing that actual sales (not seasonally adjusted) in January were 4.0% above sales in January a year ago "and stood even with the five and 10-year averages for January sales."

"The national housing market is stabilizing and remains well balanced," Gary Morse, CREA president, said in a statement.

"With sales down by more than new listings, the national market shifted further into balanced territory," the CREA statement said.

The actual (not seasonally adjusted) average price for homes sold this January across Canada was C$348,178 (US$349,570), up 1.2% from its year-ago level. "This ranks among the smallest increases since late 2010," CREA said.

The 4.5% decline month-over-month is sharp, the sharpest monthly decline since January, 2010. CREA said it "reversed a string of monthly increases over the closing months of last year and returned national activity to where it stood at the end of the third quarter of 2011."

"While policymakers and pundits have been wringing their hands in anguish over the possibility of a Canadian housing bubble, the facts on the ground send a much calmer message," Douglas Porter deputy chief economist at BMO Financial Group, said in a commentary. "The housing market currently looks well balanced, and is broadly moderating on its own accord."

The response from Jacques Marcil, senior economist at TD Economics, was that Canada's housing market had been "firming up during the second half of 2011," and January's decline "is likely reflective of what will shape up to be a softer year in sales, especially when it comes to Toronto and Vancouver condos."

Marcil said in a research note that TD Economics expects slower growth this year, with sales volumes up 0.5% and prices up 2.5%. An actual correction in the market, he said, is expected for 2013, "with both resales and prices turning negative."

There is a debate in Canada about whether the nation is in the midst of a housing "bubble" with a crash looming somewhat reminiscent of the United States housing crash, or whether activity elevated by low interest rates is due only for a correction.

Those expecting a hard landing focus especially on the very hot Vancouver and Toronto markets -- particularly condo towers. Condominium construction always is particularly volatile, economists say.

Some term the national housing market about 10% overvalued. Most note that the over-valuing has been strongest in Vancouver, Toronto and Montreal, the three largest metropolitan areas.

Resale activity was down in more than half of all local markets in January, led by declines in Greater Toronto and Montreal, the two largest city areas, CREA said. It added that "demand also softened in a number of other major urban centres including the Fraser Valley (British Columbia), Calgary, Edmonton, Winnipeg, Ottawa and Greater Vancouver."

The cities mentioned take in most major centers from Montreal eastward but not those in the four Atlantic provinces.

Gregory Klump, chief economist for CREA, said year-over-year comparison in the national average price may turn negative as 2012 progresses, but that this effect will be skewed by what happened in Vancouver in the first half of 2011.

"At that time,high-end home sales in Vancouver's priciest neighbourhoods surged to all-time record levels, which skewed the national average price upward considerably," Klump said. "A replay of this phenomenon is not expected this year. As a result, comparison for national average price to year-ago levels over the coming months will reflect an upwardly skewed base effect."

The Canada Mortgage and Housing Corporation, the federal government's home mortgages agency, Monday predicted stability in prices and sales over the next two years.

BMO's Porter wrote that Canada's housing marker "is showing further distinct signs of a welcome moderation as 2012 unfolds, with even some of the previously hottest cities simmering down."

Porter noted that "the supply of existing homes for sale nudged back up in January, but remains unremarkable at 6.0 months, and the ratio of new listings to sales is also within long-term norms."

Regionally, Porter said, "the biggest story is still Vancouver," but now because of a 13.4% year-over-year drop in sales, the largest in Canada. Just as the spike in high-end sales skewed the national average upward, now weaker sales in the same high-end markets "are now skewing the overall results lower," he said.

On the other hand, although Toronto dropped 2.9% in sales in January from December, it is up 5.2% year-over-year. And Toronto prices were up 8.5% in January over January, 2011.

** Market News International Ottawa **

 
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