Real Estate Recovery … or Bounce?

Canada’s home resale market showing signs of recovery as it rises for third straight month.

Canada’s housing market shows every sign of having bounced back from its recessionary bottom, with both the number and price of homes rising for the third straight month in April. The Canadian Real Estate Association said homes sales soared 11.2 per cent on a seasonally adjusted basis from March, the biggest jump in five years, and with 34,838 units trading hands, the highest level in seven months.

Meanwhile, the national average sale price of homes listed by realtors also rose in April to $306,366 in April. But while encouraging, the report noted that both sales activity and prices remain at levels lower than a year ago, indicating the housing market has yet to fully recover to pre-recession levels.

The average home resale price is down 3.2 per cent from a year ago and down almost 10 per cent from the peak of $324,000 reached in December 2007.

Economists with Scotia Capital pointed out in a note to clients that the resale housing market does little to increase gross domestic product since it involves paper transactions, and that new home construction remains weak.

“(And) we seriously doubt its sustainability, especially into the next decade,” added economists Derek Holt and Karen Cordes, explaining that low mortgage rates are likely pushing future demand forward as home-buyers seek to take advantage.

“We are, after all, still dealing with the highest stock of unsold new homes and the highest ratio of resales to listings since the mid-1990s.”

TD Bank economist Paul Gauthier is also hedging his bets and still expects prices to decline a total of 20 per cent during the recession, with half of that slide having already taken place.

“So far, the first four months of 2009 lends credence to the view that improved affordability is winning out against the weak economic backdrop of a recession,” he explained. “But we are still in the early rounds of a bout that has yet to fully play out.”

Still, the housing news is more solid than many other indicators in the recession-battered economy.

Bank of Montreal economist Robert Kavcic noted that the average home price was now only 3.2 per cent lower than a year ago, the slowest rate of decline in nine months. And even that price drop is being exaggerated by the sharper drop-off in the most expensive cities, with prices Vancouver, Calgary and Toronto falling about 10 per cent.

The average residential price broke all previous monthly records in Saskatchewan, Manitoba, Quebec and Nova Scotia.

The real estate group said rebounding consumer confidence and lower home prices have contributed to the market improvement in recent months.

April’s sales improvement follows advances of 7.7 per cent in March and 10.3 per cent in February, with 70 per cent of local markets recording an increase.

Regionally, British Columbia, Alberta, Ontario and Quebec showed improved results with the lion’s share of gains coming in Toronto (10 per cent), Vancouver (30 per cent), Montreal (15 per cent) and Calgary (15 per cent).

CREA said the lower supply of homes coming onto the market helped balance supply and demand in April.

The association said that, without seasonal adjustments, the number of actual home sales were 11.8 per cent lower than last year.

The residential dollar volume of sales increased to $10.2 billion, the first time since last September that it surpassed $10 billion.

“If the trend for sales activity over the past few months persists, the number of transactions in May could surpass the pre-recession levels of September 2008,” said CREA economist Gregory Klump.

He noted that in the past two recessions, sales activity bottomed out before the job market or the economy, but that improved affordability may result in the housing market leading the economic recovery this time.

Leave a Reply

Your email address will not be published. Required fields are marked *