Entries from August 2008 ↓

Ouch, 80,000 times

August 29th, 2008 — Book Updates — E-mail this blog post to a friend

Remember this? Now the sign of things to come, as CREA confirms we’re in the middle of a listings blizzard. Look out below.
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Since becoming the bane of realtors’ collective existence, I ve been peppered with media questions about why prices in Canada have not declined lockstep with with those in the US. The fact we haven’t had a 20%-40% collapse in the values of homes in the GTA or Saskatoon or Victoria is held as evidence things are “different” here.

They wish.

The reality is, the Canadian market will crumble for precisely the same reasons the American one did, with similar results. We bubbled. We indebted. We overfinanced. We rolled and gambled. Canada is lagging the US by almost exactly two years, which puts us now where our southern middle-class brethern were in the fall of 2006, just 11 months into the bubble’s bursting. The fact that the American market is still collapsing should give an indication of what lies ahead.

Let me make it clear once again: First sales stagger, then listings explode, then sellers panic, then prices tumble. We’re in stage two. More evidence confirming this was released Friday:

Resale home listings reach record high

(Globe & Mail) Resale home listings cracked the 80,000 mark last month, the highest level ever reached, according to data released Friday by the Canadian Real Estate Board (CREA).

New listings on the Multiple Listing Service (MLS) soared to 80,147 nationally in July, up 14.4 per cent year-over-year. The number of resale homes that hit the market rose by 1.4 per cent from the month before and 0.5 per cent from the previous record set in May 2008.

While listings surged, sales slumped by 12.2 per cent year-over-year to 48,748 units in July. The average home price declined by 2.4 per cent to $302,298.

The significant increase in supply has been the result of declining affordability in a housing market which experienced double-digit yearly price gains from 2002 to 2007, said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.

Unlike in the U.S., a large part of the surge in listings in Canada is coming from people looking to cash in before prices either cool further or decline, a sharp contrast to the forced selling that is taking place in the U.S. as homes go into foreclosure, he added.

Last month Ontario and Quebec reached new listings records, and the number of existing homes for sale in Manitoba reached their second-highest level this decade.

Those gains offset a decline in Alberta, where listings continue to decline from a peak hit in March.

Listing surged the most percentage-wise in Saskatchewan (up 42.5 per cent), Manitoba (up 31 per cent), and British Columbia (up 21.1 per cent).

Friday’s data includes all of Canada, and expands on a report of the country’s major markets released by CREA earlier this month.

While listings surged, sales slumped by 12.2 per cent year-over-year to 48,748 units in July.

Sales plunged the most in British Columbia, where they were down 37.3 per cent, followed by the Yukon and Saskatchewan, which were down 26.7 per cent and 24. 9 per cent respectively. Sales rose the most in Manitoba, which had a 12.4 per cent increase, and in the Northwest Territories (up 11.8 per cent), and Newfoundland (up 11.5 per cent).

The average home price declined by 2.4 per cent year-over-year in July to $302,298. Prices fell the most in the Northwest Territories, albeit on a relatively small base, down by 26.7 per cent to $272,779. Prices also declined in the Yukon (down 9.6 per cent), Alberta (down 5.2 per cent), the Prairie provinces (down 0.9 per cent), and British Columbia (down 0.4 per cent)

Prices rose the most in Saskatchewan (up 29.9 per cent), Newfoundland (up 18.7 per cent), and Manitoba (up 13.5 per cent).

These provinces are the most likely to follow Alberta into a slowdown in the coming months, Mr. Alexander said.

While prices will likely drop further in some regions, this should only be troubling for people who bought recently with plans to flip their home quickly, rather than those who have a medium-term time horizon, he added.

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Not even close

August 27th, 2008 — Book Updates — E-mail this blog post to a friend

Another condo project was cancelled last week in mid-town Toronto. No headlines here. The media did not even notice. Just a letter sent to the unhappy people who wanted to live there. Many of them, in reality, did not understand how lucky they were.

Two thousand miles away, the average price of a detached home in Burnaby took a plunge, according to last weekend’s paper. A nondescript detached home you’d drive by without noticing now sells for $705,000, which is $42,000 less than about a month ago. Yeah, that was an 8% decline in a few weeks.

In this Van burb, listings are up 24%. Sales are down 44%. Back in southern Ontario, listings have also exploded higher, while realtors are desperately trying to cling to the fiction that sales are flatlining and prices are stable. Of course, the trend line is clear. The market is in trouble.

As in Burnaby, so it is in Mississauga. The number of days on market has about doubled in the past year, which means homeowners – a great many of them first-time sellers – are learning the hard way that supply and demand has more of an impact on prices than squeezing hard and hoping.

Listings in the GTA area started to really rise in April and May, which means many sellers are just coming up to the 90-day mark for their listings. They are now being told that to have any chance of selling in the hotter autumn season, prices will have to be reduced. Thus, officials numbers for sales closing from November through to February will show average and median prices taking a haircut.

This, in turn, will set the backdrop for the Spring, 2009 market, which will be one of reduced activity, substantially lower house values and a worsening economy. That’s just a reality, now that bank profits are tumbling, commodity prices have turned hugely unstable, and both Canada and the United States are in the middle of regime change, or at least political upheaval.

Then, natch, we have the looming Oct. 15 death of the 0/40 generation, the immediate consequences of which are uncertain. But not good. Already new home sales have taken it on the chin. Huge Mattamy Homes – now the nation’s largest builder – has slashed prices by up to $50,000. At the same time some banks who shall remain nameless (like TD) have found ways of turning a cash-back mortgage into a zero-down loan, which only extends the miserable adjustment period a while longer.

Of course, opportunity will emerge from all of this. There will be a bottom. Prices will correct too far, and then profits will lie there for the courageous to scoop up.

But, we’re not there yet. In fact, we’re not even close. Remember, the US market started to tank in September of 2005 and now – the autumn of 2008 – foreclosures are growing, prices are falling and middle-class homeowners are being destroyed in even greater numbers.

There will be many siren calls of relief in the coming months from the real estate community. Heed not a one.

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