Market deterioration surprises analysts, implies 'bust has begun'
It doesn't bode well for consumer confidence this Christmas when the value of an existing Canadian home is worth $30,000 less than a year ago, as the accelerated pace of the housing slowdown continues to surprise analysts.
"Canadian home sales look to be one of the biggest casualties from the intense market turmoil," BMO Nesbitt Burns economist Doug Porter wrote in a note.
"We declared early this year that the housing boom was over, and these figures on the surface would suggest the bust has begun."
The average price of a home in October was $281,133, compared with $312,024 in October of 2007, according to figures released yesterday by the Canadian Real Estate Association.
In Ontario, the average price was down 10 per cent to $281,661 in October, compared with $312,937 in October of 2007.
Sales were also down by 14 per cent in October over September, the largest month-over-month decline in seasonally adjusted sales in more than 14 years.
"The dramatic fall-off in existing home sales and prices is clearly more profound than economic fundamentals would suggest," says Millan Mulraine, economics strategist at TD Securities. "The exaggerated pace of deterioration suggested by this report is quite surprising, if not a little concerning."
Fewer sales in the key Toronto market accounted for nearly one-third of the decline in national activity.
Sales declined by a stunning 35 per cent in the Toronto area in October compared with a year ago, while prices were down 10 per cent.
"The major drop in consumer confidence and a steady stream of economic bad news from the financial markets is taking its toll on the national housing market," said CREA president Calvin Lindberg. "When consumers are not confident about their financial situation, they're not active in the housing market, and that in turn impacts the economy more."
The impact of the global credit crunch has had real estate economists busy revising their forecasts downward for next year.
"A strong likelihood of an economic recession has emerged from the crisis, and along with it dramatically weaker housing demand," says a report by the Altus Group. "Expect sharply lower housing starts in 2009 as Canadian housing markets get pummelled by these forces."
Ontario, which is bearing the brunt of the economic slowdown, "will continue to do so going forward," says the report. "Weaker demand along with financing issues may put many planned projects on hold, particularly in the Toronto condominium apartment sector."
Some analysts see the new-build condo sector, with almost 300 projects on the market, as particularly vulnerable to a downswing.
Some projects are not expected to go ahead as demand falls and financing gets harder to obtain. But some developers think that may be a good thing.
"It's not a sign of anything other than business is healthy and things need to be weeded to be stronger," says Julie Di Lorenzo, Diamante Development Corp. co-president. "Name me one business area that doesn't shed the weakest links. New players will gain more experience, fine tune their business plans and come back into the market."
Last week the condominium developer held a groundbreaking for its luxury project The Florian, where prices start at $1 million. The developer took out a Canada Mortgage and Housing Corp. policy that insures construction financing, she says.
Meanwhile, Porter says to expect a "further decline in sales and some further correction in prices in the year ahead, especially in cities that had the biggest booms."
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Contact : Peter Bhandari
Sales Representative
Royal LePage Credit Valley Real Estate
Direct: 4168272340
Office: 905-793-5000 X 478
pb@royallepage.ca
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