Entries from June 2008 ↓

Home listings flood the market, here.

When I published ‘Greater Fool’ in April, and wrote it some weeks earlier, the MSM view was that housing in Canada was rock solid, and this country’s consumers and investors would avoid a US-style price correction. When national real estate sales volumes began to tumble in February, March and April, the industry blamed snow. When sales levels fell but average prices continued to creep higher, we were told this was proof the market was inherently healthy.

Of course, it’s all part of a pattern which was evident to me – and anyone else with a grasp of reality – months ago. Sales volumnes crash first, prices later. In fact, an analysis of the last Canadian housing dwclines in the Eighties and early Nineties shows the pattern clearly – the greatest of fools are those who are tricked by numbers, blinded by greed, and buy into a market where prices are high and sales thin.

The big news this September or so will be a decline in average home prices in all major markets – not just Alberta. It will be a bitter awakening for all those who dismissd the obvious, and bought in 2008.

The article below by technical analyst Bill Carrigan appears in the Toronto Star. He bears this out. — Garth

Not too long ago, not-in-my-backyard referred to nearby unpleasant projects that could degrade housing prices. Now the great not-in-my-backyard fear is an epidemic of For Sale signs.

So far, our local housing markets have remained isolated from the trouble in the United States, especially California, Florida, New York, Michigan and the suburbs of Chicago. These areas peaked in 2005 and then started deflating in 2006. This in turn greatly increased foreclosure rates and sparked the August 2007 sub-prime mortgage and credit crisis.

Should we worry about the U.S. housing problems?

According to the Toronto Real Estate Board (TREB), there were 9,411 GTA-wide single family dwellings sold in May. “While off last year’s pace, a 9,000-plus sales month is certainly indicative of a healthy market,” the board said.

TREB said prices have trended upward on a year-over-year basis, with the average rising to $398,148, up 4 per cent over the May 2007 figure of $382,787.

According to TREB, homeowners in the GTA are still insulated from the volatility of the U.S. housing market.

As a technical analyst, I couldn’t help noting the many technical arguments used by the author of the TREB report.

“Prices trended upward” is a technical study of trend. The reference to year-over-year price change is a technical study of price momentum. It appears the author is a closet technician who has skilfully used available data to support TREB’s bullish outlook.

Unfortunately, the bullish analysis loses credibility when a bearish glitch is disclosed. It appears the inventory (for-sale listings) has increased by 15 per cent over May 2007. This is brushed off as “good news” for potential homebuyers.

Our chart this week is of the average monthly resale price of single family dwellings in the GTA spanning about 14 years. The smooth line just below the price plot is the 30-month moving average.

If we were to end our technical analysis here, we would conclude the price trend is upward because the price is above a long-term moving average and the moving average is pointed upward.

The lower plot is what I refer to as the sales-volume-on-balance line.

This line represents the relationship between the number of monthly sales and the monthly average sale price. The principle is based on the on-balance volume study introduced by Joe Granville in 1963, which is a measurement of positive and negative volume flow.

The principle is simple. In an upward trending market, rising prices must be accompanied by rising volume; during a short corrective period, the lower prices are accompanied by lower volume. A negative trend change is signalled when prices advance on lower volume, or if prices decline on higher volume.

Unfortunately, over the past several months there has been a series of negative price and volume relationships, which have driven our sales-volume-on-balance line lower through 2007 and 2008.

The May sales number registered yet another decline from April on higher sales volume, which in turn drives the sales-volume-on-balance plot lower.

This, along with the higher inventory numbers, tells me sellers are getting more aggressive, which in turn could result in lower prices through the remainder of 2008.

A logical downside price target would be the rising 30-month moving average, currently at the $371,000 level – the “good news” for potential homebuyers.

Bill Carrigan is an independent stock-market analyst. He can be reached at www.gettingtechnical.com

Van money guru interviews Garth Turner, here.

Even Re/Max admits cottages taking price plunge

Tony Wong
business reporter
Higher gas prices and an uncertain economic outlook means cottage country is becoming further out of reach for some buyers – even as prices soften for some Canadian recreational properties.

After a decade of substantial price increases, a significant jump in listings on the market and fewer buyers have resulted in starting prices that have started to decline in some areas, according to a report by ReMax Ontario Atlantic Canada released today.

Of 45 Canadian markets surveyed, ReMax says 67 per cent reported falling sales.

While most markets saw prices remain flat or increase slightly, some areas are starting to see decreases for the first time. Starting prices in popular Ontario towns such as Haliburton, Bancroft and Parry Sound were down from 10 to 20 per cent, according to ReMax.

In Haliburton, a starter waterfront cottage can be bought for $275,000, down from $350,000 last year. In Parry Sound, a similar cottage can be purchased for $180,000, down from $200,000.

“It’s been a sluggish market. I think given the economic conditions you have to have your head in the sand if you don’t acknowledge that there’s a correction around the corner,” says Muskoka-based realtor Anita Latner.

With the Ontario economy slipping into what may be a technical recession as the manufacturing sector takes a major hit from layoffs and downsizing, discretionary purchases such as vacation homes are typically the first to go.

During the real estate bubble of 1989, prices on cottages fell much more quickly than on primary homes, as buyers unloaded non-core investments.

Parry Sound-based realtor John Sallinen says sales are about 20 per cent down from the same time last year, with properties taking about twice as long to sell.

“Buyer’s aren’t rushing. They’re taking their time and there’s much more to choose from,” says Sallinen.

Meanwhile, higher gas prices have also made some buyers think twice about heading out of town every weekend.

“It’s certainly a consideration,” says Sallinen. “It’s one more thing that people have to think about.”

“There’s no subway to where we’re going, so you have to take the car or the van. And it can take a psychological toll if you feel like you’re getting ripped off paying these prices,” said Latner.

Sallinen says he’s already seeing the effect. Couples who may take two cars to the cottage, with one partner going up early during the week, may now decide to make one trip, for example. Others may not travel to the cottage as frequently.

However, Sallinen he hasn’t lost a sale because of gas prices yet.

“They will find a way to get to the cottage if they have to,” he says.

Latner expects tourism in cottage country to be hit first by gas prices, followed by cottages on smaller lakes.

“The day trippers – people who might have driven up for a picnic – and older folk who may have had a cottage in the family for decades will probably get hurt first,” says Latner.

That scenario would be less likely in Muskoka, where a dozen properties have sold for more than $1 million already in the first four months of the year.

“If you have to worry about gas, then you’re probably not buying a property in Muskoka,” says Latner.

Still ReMax says there is already softening in the upper end of the market, above the $2 million range.

Another reason for softer sales is competition for recreational properties from the United States. Instead of buying a second property in Ontario, buyers are now looking at Florida and Arizona to take advantage of the strong Canadian currency.

With the depressed U.S. market, some American properties are half the price they were only a year earlier. Conversely, American buyers are not as prevalent since the loonie hit par with the greenback.

Another reason for softer sales has been an exceptionally cold winter, say realtors.

“Take what you got in Toronto this winter and double it,” says Latner.

Realtors blamed the exceptionally cold winter for the rocky start to the cottage market. I’ve had clients who haven’t seen their cottage when it wasn’t raining this year.”