Red-hot housing market loses its heat
From Thursday's Globe and Mail
May 14, 2008 at 9:48 PM EDT
As a flood of sellers sent home listings to their highest level on record last month, at the same time sales slowed as wary buyers remained on the sidelines.
This shift in dynamics suggests a marked change is taking place after the frenzied bidding wars that characterized the country's housing boom, providing good news for buyers who want to make less pressured purchase decisions.
"For the first time in a long time, sellers are not in the drivers' seat any more. I'm not necessarily saying that buyers are in the drivers' seat either, but what we've seen truly is a return to a balanced market," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.
Resale home listings across Canada rose by 17.7 per cent last month from the year before, putting them at the highest level on record, according to data released Wednesday by the Canadian Real Estate Association (CREA).
In the same period unit sales dropped by 6.1 per cent from the year before, although they edged up slightly from a weak March.
Listings in Saskatoon rose by 121 per cent compared with the year before, and by 18 per cent in the country's largest housing market, Toronto, which makes up about 18 per cent of all resale housing activity on the Multiple Listing Service.
CREA's data came on the same day as a survey suggesting two-thirds of Canadians are either negative or neutral about the prospect of buying a home right now. The other third said that now is a good time to buy a home.
The results are similar to a study last fall, and this consistency suggests Canadians haven't been too shaken by the U.S. subprime mortgage crisis, said Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals (CAAMP) and author of a report released Wednesday that included the housing survey.
Canada's strong economy, primarily the high rate of employment, is helping maintain confidence in the housing market, Mr. Dunning said.
However in regions where prices escalate quickly, sticker shock can trump economic fundamentals in the short term, he added.
This was demonstrated by CAAMP's survey, in which residents of Saskatchewan were the most leery about buying a home, with 70 per cent saying it is not a good time. Home prices rose 32 per cent in the province last year and are expected to rise by 19.5 per cent in 2008, compared with the forecasted 5.3-per-cent national average, according to CREA.
Despite the glut in supply, there have been no economic reports forecasting a drop in home prices this year, merely a cool-down from the double-digit gains of the past.
So far the data bear this out, with none of the cities included in CREA's report showing a year-over-year price decline in the first four months of 2008.
Prices are very "sticky," they are one of the last things to adjust when the market cools and it takes a great deal to drive them down, Mr. Porter said.
Perhaps one of the biggest signs that sellers may have to lower their expectations can be found in CREA's press release referring to the data.
"This means buyers face less competition in their search for a home. It also means more competition among home sellers, so presentation factors such as prudent pricing are necessary for faster sale," said Calvin Lindberg, president of CREA.
This, Mr. Porter said, is "a polite way of saying: ‘If you're looking for double-digit [annual] price gains, dream on.'"
A return to balance in the market has been a welcome relief for Jim Sparrow, a real estate agent with Calgary-based Keller Williams Platinum Realty. He remembers the peak of the market last year as an agonizing time for some of his clients, who were making and losing hundreds of offers as they desperately tried to crack the Calgary housing market.
Perhaps the craziest situation he witnessed was the bidding for a small, no-frills condo unit which just months earlier would have sold in the $90,000-range. With an unconditional, cash offer at $30,000 over asking price, Mr. Sparrow's client figured she'd finally put up enough to break a string of lost bidding wars. She lost the 21-buyer race to someone willing to pay nearly $200,000 for the tiny unit.
A year and a half later you won't find situations like that in Calgary any more, Mr. Sparrow said.
"We've been in a buyers' market for the last three or four months here. What's unfortunate is that a lot of sellers don't realize that yet," he said.