August 28, 2010

"The Star" says:

Canada’s major metropolitan housing markets are looking awfully bubbly and are due to burst, says a report released Tuesday.

The report, entitled Canada’s Housing Bubble: An Accident Waiting to Happen, by the Canadian Centre for Policy Alternatives, looks at prices in Toronto, Vancouver, Calgary, Edmonton, Montreal and Ottawa.

It concludes that housing price appreciation is frothy in comparison to historic values.“I think at best you will see stagnation in housing prices or some kind of correction, and at worst you will see the bubble bursting,” said David Macdonald, an economist and research associate at the centre. Housing bubbles emerge when prices increase more rapidly than inflation, household incomes and economic growth. That has been the case for Canada over the last run-up in prices, according to the report.

Macdonald said this bubble is different than others, because for the first time it is spreading beyond Toronto and Vancouver. “Canada is experiencing for the first time in 30 years a synchronized housing bubble across the six largest residential markets,” he said. Major banks have reached conclusions similar to those of the left-of-centre think tank. The Toronto Dominion Bank has estimated that average prices are 10 to 15 per cent too high, while the CIBC has said prices are 14 per cent overvalued.

Canada has only had three bubbles. Toronto experienced a large bubble in 1989, while Vancouver had two burst in 1981 and 1994.

Macdonald said a full-blown crash can still be avoided if mortgage rates do not ratchet up quickly and if government puts more stringent requirements on lending.

He said legislation could be introduced to return mortgage lending to 2006 criteria, where purchasers had to put 10 per cent down for a 25-year amortization. Although the federal government already put tighter restrictions in place earlier this year, buyers still have the option of putting 5 per cent down and can take a 35-year amortization on homes. “Consumers should also play a part by not buying more house than they can afford,” says Macdonald. The report says the last bubbles were triggered by interest rates moving up by just one per cent above the two-year rolling average.

“It doesn’t take much for consumers to take pause, especially those who are used to seeing such low rates,” said Macdonald. “You also have a lot of consumers, particularly outside Toronto and Vancouver, who have no memory of what a bubble is like or the aftermath.” Low mortgage rates, access to easy credit and net immigration have also contributed to price pressures, said Macdonald.

Between 1980 to 2000, the historical price range for housing stood at between $50,000 and $80,000 in inflation-adjusted 1980 dollars. But within a brief five-year period from 2001 to 2006, major housing markets shot to well above that $80,000 average, according to the report.

“The comfort level isn’t there as affordability erodes,” said Macdonald.

Housing prices have stayed in a narrow range of 3 to 4 times income in the 20 years before 2000. The problem is, says Macdonald, is that housing prices adjusted for income today are anywhere from 4.7 to 11.3 times annual income in the six major areas. Not everyone agrees with the findings of the report.

Toronto economist Will Dunning says that the market cycle is in a cyclical downturn – not a bubble. “It is quite possible that the next phase of the cycle will be a partial reversal of the price gains of maybe 5 to 10 per cent, but this is not a post bubble collapse,” says Dunning. “It is the operation of a functioning market in which the vast majority of buyers are making decisions based on their real needs, not the mindset normally associated with bubbles.”

Despite their differences, all analysts seem to agree that prices could fall. Macdonald gives three scenarios in which prices might drop. The first is similar to what happened in Vancouver in 1994, a market correction through price deflation.

In that scenario, Toronto prices would decline by 9 per cent from an average of $420,000 to $382,000. In the second scenario, the bubble would burst more slowly, similar to the 1989 Toronto bubble. In that case, prices would decline by 21 per cent from $420,000 to $330,000 over a five-year period. In the worst scenario, a bubble would form similar to the United States and prices would fall rapidly. In that case Toronto prices would drop 20 per cent over three years to $335,000. The price drop would be slightly less than in scenario two, but happen more rapidly.

“Bringing house prices down just enough to moderate expectations but not so much as to cause a panic is a delicate balance,” says the report. “Government policy makers, the Bank of Canada, as well as rate setters at the big banks need to work together to steer the Canadian market to a soft landing. The alternative is not acceptable.”

August 18, 2010

GTA Realtors Report Mid-Month Resale Housing Figures

Greater Toronto Realtors reported 2,732 sales through the Multiple Listing Service® (MLS®) during the first two weeks of August 2010. This represented a 29 per cent decrease compared to the 3,832 sales recorded during the same period in 2009. New listings, at 4,770 were down eight per cent compared to the first two weeks of August 2009.

"Throughout the better part of the last year, the number of monthly sales was well above the expected long-term trend. Accordingly, it makes sense that the number of transactions has dipped over the past few months in comparison to last year's record results," said Toronto Real Estate Board President Bill Johnston.

The average price for August mid-month transactions was $412,934 . up eight per cent compared to the average of $383,796 recorded during the first 14 days of August 2009.

"We have seen a sufficient number of buyers relative to sellers over the summer months to support continued year-over-year price growth in the GTA," said Jason Mercer, TREB's Senior Manager of Market Analysis.

August 5.2010

GTA Realtors Report Monthly Resale Housing Figures.

Greater Toronto Realtors reported 6,564 sales in July, a 34 percent drop from the record 9,967 sales reported in July 2009. New listings, at 10,825, dropped to the lowest level for the month of July since 2002.

The level of July sales remained below the expected long-term trend. "The market has become more balanced following record monthly sales through most of the winter and early spring," said Toronto Real Estate Board (TREB) President Bill Johnston. Total sales through the first seven months of 2010 were up by 12 per cent compared to the same period in 2009.

Notwithstanding the fact that price trends vary at the neighbourhood level in GTA, the average price for July transactions was $420,482, representing a six per cent increase over July 2009. Over the first seven months of 2010, the average selling price was up 12 per cent annually to $432,253.

"Market conditions promoting annual growth in the average selling price have remained in place. While July sales were down compared to last year, the number of new listings in the marketplace also fell. This means there was enough competition between buyers to exert upward pressure on price", said Jason Mercer, TREB's Senior Manager of Market Analysis.

See Toronto Real Estate Market Watch »

April 19, 2010

Toronto Real Estate Market showes a 48% increase in listings.

The Multiple Listing Service® (MLS®) during the first two weeks of April. This represented a 25 per cent increase compared to the 3,681 sales recorded during the same period in 2009. New listings increased by 48 per cent annually to 9,512. “The fact that annual growth in new listings outstripped growth in sales suggests that the GTA existing home market is becoming better supplied,” said Toronto Real Estate Board President Tom Lebour.

"Home owners are reacting to strong sales and price growth by listing their homes in greater numbers. They are confident they will receive offers in line with their asking price."

The average price for April mid-month transactions was $430,271 – up 12 per cent compared to the average of $383,361 recorded during the first 14 days of April 2009. "The average annual rate of price increase has declined and we are shortly going to see a return to sustainable single-digit rates of growth," said Jason Mercer, TREB's Senior Manager of Market Analysis.

"As home buyers experience more choice in the marketplace, there will be less upward pressure on the average selling price in the GTA.”

This looks like April will mark the turning point for Toronto's Real Estate Market. For the first time in years we saw new listings increase at a faster rate than sales. Toronto's real estate market has suffered from a shortage of new listings ever since the market rebounded a year ago.

April 9, 2010

 Greater Toronto residential real estate prices rose 13.3% in first quarter of 2010 according to Royal LePage.

 After a buoyant, if geographically uneven start to the year, Canada’s housing market is poised to moderate as 2010 unfolds, according to the Royal LePage House Price Survey. The post-recession real estate recovery, which began in earnest in the third quarter of 2009, continued unabated in the first quarter of the year. While year-over-year unit sales volumes increased and prices appreciated across the country, a look back at the two year period that spanned the recession’s beginning and end shows that some cities have experienced a rollercoaster effect of declining and rising prices, while at the other extreme, home prices in some regions never stopped appreciating.

“The first quarter of 2010 continued where 2009 left off, with more Canadians enthusiastically participating in a rejuvenated residential real estate market,” said Phil Soper, president and chief executive, Royal LePage Real Estate Services. “One of the earliest sectors of the economy to return to growth after the difficult recessionary period, the housing sector has been a prime beneficiary of low borrowing costs and improving consumer confidence.”

House prices were up across all key housing types surveyed by Royal LePage, with the average price of a detached bungalow in Canada rising almost 11 per cent to $329,209 in the first quarter year-over-year, while standard two-storey homes rose 10.3 per cent to $365,141 and standard condominiums increased 10.9 per cent to $228,963.

While some analysts have described house price increases over the past 12 months as a national housing boom, an analysis of Royal LePage data from Q1 2008 through Q1 2010 shows three different patterns of house price trends in Canada’s major cities:

“National averages from our first quarter report are not particularly useful in painting a picture of the country’s neighbourhood real estate stories. House sale data from the past two year period shows tremendous variances in terms of how different cities reacted to the recession,” Soper said. “In Vancouver and Toronto, for instance, the dramatic unit sales fluctuations exhibit a significant degree of market irrationality: inordinately fearful when faced with poorer markets; and overly enthusiastic when the tables turned. Montreal is an example of a city where the market has been much more stable and homeowners there seem quite happy with the relatively slow pace of change.”

“Even in our most frenzied pockets of market activity, the inevitable rise in interest rates coupled with home price appreciation will rein in demand as affordability erodes. Expect house prices to continue to rise, but the rate of appreciation should ebb steadily, month by month, throughout the remainder of the year, as balance returns to the industry,” concluded Soper.

In Ontario, home prices rose across all key housing types in all of the markets surveyed by Royal LePage, with detached bungalows and standard two-storey homes in Toronto seeing some of the largest gains. Greater Toronto home prices rose an average of 10 to 13.3 per cent year-over-year, with detached bungalows reaching an average price of $459,107 in the first quarter. Ottawa price appreciation ranged from 8 to 11.1 per cent year-over-year, with standard two-storey homes averaging $346,833 in the first quarter.

March 17, 2010

Greater Toronto Area realtors reported 4,353 sales through the Multiple Listing Service® (MLS®) during the first two weeks of March. This represented a 70 per cent increase compared to the 2,562 sales recorded during the same period in 2009 when resale transactions had dipped markedly due to the recession. The mid-month sales total was also 16% higher than the previous March midmonth high reached in 2006.

“The spring-like weather in the first half of March brought the first green sprouts of the recurring spring market. Every year, monthly sales climb steadily through May,” said Toronto Real Estate Board President Tom Lebour. "People are buying homes because they are confident in the current economic recovery and mortgage payments on the average priced home remain affordable."

The average price for March mid-month transactions was $440,153 – a 20 per cent increase over 2009. New listings within the Toronto Real Estate Board boundaries were up 34 per cent to 8,540.

"Look for double-digit annual price increases to cease later in 2010, as new listings rebound from the low levels experienced in 2009," said Jason Mercer, TREB's Senior Manager of Market Analysis. "Increased listings will give buyers more choice, resulting in less upward pressure on home prices.”

March 3, 2010

The Toronto area real estate market will continue to do well in 2010 before retrenching significantly next year, CMHC says.

Sales of new homes in the Toronto area are expected to rise 30 per cent compared with 2009, while existing home sales should be up 2.5 per cent, according to a report released Tuesday by the Canada Mortgage and Housing Corp. "We have entered this year with significant amounts of momentum as a number of temporary factors have boosted sales and prices in recent months," CMHC economist Ted Tsiakopoulos said.

"But moving forward, the rate of appreciation will slow down as you have higher mortgage carrying costs, less pent-up demand and increasing supply pressures."

The market this year will be the flip side of last year, which saw the market flounder in the first half before rocketing upward in the second half, CMHC analyst Shaun Hildebrand said.

"This year will be a very good first half, followed by a slower second half. Right now, we are having exaggerated rates of price appreciation as supply is tight and interest rates are low," Hildebrand said.

The Bank of Canada left its key overnight rate unchanged at 0.25 per cent Tuesday, but adopted a more hawkish tone, suggesting that interest rates would go up sooner than later.

Meanwhile, housing starts and residential construction have trailed the existing home market, but low interest rates mean that single detached starts should do well in the first half of the year, CMHC said. As affordability becomes more of an issue, demand is expected to shift in the second half to condominium and row housing.

March 3, 2010

Toronto area realtors reported 7,291 sales through the Multiple Listing Service® (MLS®) in February, representing a 77 per cent increase over February 2009. The average price for these transactions was up 19 per cent year-over-year to $431,509. Sales and average price increases represent both increased demand for ownership housing and the base year effect, which involves a comparison of economic recovery this year to a period of economic decline last year.

“Increases in existing home sales and average price were noted across the GTA in low-rise and high-rise home types. Similar rates of growth were experienced in the City of Toronto and surrounding 905 regions,” said TREB President Tom Lebour. “This suggests that first time, move-up and down sizing buyers are all active in the existing home marketplace.”

New listings also increased in February, climbing 24 per cent compared to the same month last year. “Annual growth in new listings is expected to continue. New listings growth will start to outstrip sales growth as we move through 2010,” said Jason Mercer, TREB’s Senior Manager of Market Analysis. “As the market becomes better supplied, we will see more sustainable single-digit rates of price growth.”