After a long run of rapidly-rising prices, the Canadian housing market has cooled to the point that it is no longer a sellers' market, Toronto-Dominion Bank said Thursday.
“The long-awaited end of the Canadian housing boom has occurred, reflecting more moderate demand and increased supply of properties for sale,” TD economists Craig Alexander and Pascal Gauthier said in a report.
“The year-over-year price growth for existing homes in Canada's major markets fell to only 1.1 per cent in May, down from 8.6 per cent just four months earlier,” the TD economists wrote.
“The trend has been broadly based, but is has been particularly sharp in some of the markets that had experienced the most dramatic price growth. Calgary and Edmonton home prices in April and May fell to below year-earlier levels.”
The TD economists said they had expected the slowdown to occur before now, but “housing remained stronger for longer than we had anticipated, largely due to increased affordability through new financing options, such as no money down or extended amortization.”
Regional economic strength related to the commodity boom also helped to fuel “unsustainably elevated home price growth in the west,” they wrote.
Last month, the Canadian Real Estate Association reported that resale home listings across Canada rose by 17.7 per cent in April from a year earlier – pushing the number of home listings to the highest level on record.
At the time, Bank of Montreal economist Douglas Porter noted: “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.”
The TD economists concurred in their report Thursday.
“Most of Canada's major housing markets have moved out of sellers' territory to more balanced markets.”
Mr. Alexander and Mr. Gauthier forecast modest national average price growth of 2 per cent this year and 3.5 per cent in 2009, “down substantially from the 10 per cent annual pace of the last six years.”
However, the Canadian housing market remains fundamentally strong, unlike the U.S. market, where the National Association of Realtors reported Thursday that median home prices continued to fall. The median price of an existing U.S. home sold in May was $208,600 (U.S), down 6.3 per cent from a year earlier – fallout from the subprime mortgage crisis.
In Canada, the TD economists forecast an average existing home price of $313,300 (Canadian) in 2008, up 2 per cent from last year's average.
Canadians, the TD economists said, are “cashing in, not foreclosing.
“... It should be stressed that the rise in listings does not reflect homeowners of principal dwellings desperate to sell, and this is the dominant difference between the Canadian and U.S. experience,” they wrote in their report, Canada's Housing Boom Comes to an End.
“Indeed, the U.S. has been characterized by an abnormal rise in delinquencies and foreclosures or large negative equity positions. In Canada, speculators may be quickly dumping properties on the market to get out while the times are good, but individuals that have a principal dwelling are not under financial duress.
“Canadian consumers are nowhere nearly as leveraged through their home equity as American consumers are.”
Throughout the rest of this year and 2009, most regional housing markets in Canada “will see low to mid single-digit gains, but Saskatchewan and Manitoba will continue to post double-digit gains in the near term, followed by a significant cooling in 2009 – with the risk of a mild price correction in the major cities that have recently experienced extraordinary price growth,” the TD economists said.
“Alberta will have further weakness in the near term, as Calgary and Edmonton will likely see prices continue to fall for another three or four quarters, dropping 8 per cent to 10 per cent from their peak, after which prices should stabilize and start rising at a low single-digit pace.”
