Mid-Year Update On Canadian Real Estate Market Outlook 2010

The Seasonally adjusted national home sales from the Multiple Listing Service (MLS) Systems of Canadian real estate boards declined 6.8% in July, from the previous month.   A decline of 30% (non-seasonally adjusted) in July compared to the previous year’s sales volume, was in large part due to the significant decrease in BC (-14.1%) and Ontario (-8.0%).  The HST (harmonized sales tax) went into effect on July 1, 2010.  The decline in the number of sales offsetted the increase during the first half of the year, where buyers & sellers attempted to close transactions before the HST.  HST is only applied on new homes that close after the July 1 introduction.  The HST does not apply to resale home sales (but do apply to commissions).  However, there was much confusion among consumers on what it applied to, and how the deadlines actually worked.

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Supply for new residential homes continued to be very tight as it was the third consecutive monthly decrease, and the largest decrease in more than a decade.  A trip around the Greater Toronto Area (GTA) to new developments, reveal fewer units available for the current phases that have opened within recent months.  Sales have remained hot with the majority of the lots being sold within a few weeks of opening.   However, sales have become slower within the last week as expected.  The last weeks of the summer are traditionally slower periods as the back-to-school season ramps up and parents become focused on their children’s school preparations.  It is also seen as the last opportunity to take vacation time before the summer ends, and cooler weather starts in September. The introduction of the HST, as well as homebuyer confusion/misconceptions about it, helped fuel higher new home sales (even for units that close after July 1, 2010).  Prices for new homes have only increased slightly within recent months, as the majority of newly built home price increases occurred earlier this year.

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Resale homes have continued to sell, without any real significant decrease in price.  The average price of a home sold in Canada in July was $330,351 (1% increase from a year ago). The average price of a home sold in June was $342,662 (3.6% decrease from the previous month).

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The overall inventory rate, which reflects all housing on the market, continued to increase.  Houses have also been sitting on the market for longer periods of time before being sold.  Earlier in the year, a typical home would sell in approximately 2-3 weeks, compared to 4 weeks to 1 month or longer.

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On Monday, August 17 2010, the Royal Bank of Canada, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, and Bank of Montreal lowered interest rates. The 5 yr, fixed-rate closed mortgage decreased to 5.49%.

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Everything has been inline with what we’ve expected and discussed earlier this year.  The outlook for the remainder of the year and going forward has not changed.  We still do not expect a US style real estate crash here in Canada.  New home builders have been steadily reducing the supply of available units for each new phase that is released, leaving little to no inventory available.  In the resale market we expect a temporary decline in price and only moderate growth.   Affordability continues to become an increasing issue going forward.

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Thanks & Happy Investing! — The Investment Blogger © 2010

Author: The Investment Blogger

I’m a private investor, who developed the “function-centric investing” paradigm. I am an investor who blogs a little here and there, rather than a blogger who invests a little here and there. I'm passionate about investing and sharing investment knowledge!

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5 Comments

  1. It would interesting to see yields in Canadian market.

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  2. Listening to 680news on the way to work, I’ve noticed about 4-5 new condo developments in Toronto that have started advertising within the last 30-60 days for pre-sales registration. A few that I remember are:

    Chaz on Charles (longest running been out for a while)
    Yonge & Bloor (Charles St) area. Downtown Toronto
    http://www.chazoncharles.com/

    The Mercer
    John & Mercer Street. Downtown Toronto
    http://www.themercer.ca/

    Refelections, Residences at Don Mills (newest)
    Don Mills & Lawrence. Toronto
    http://www.residencesatdonmills.ca/

    LivLofts, Shops at Don Mills (newest)
    Don Mills & Lawrence. Toronto
    http://www.livlofts.com/

    OceanClubCondos, (newest)
    Lakeshore Rd & Humber Bay, Toronto
    http://www.oceanclubcondos.ca/

    There seems to be no shortage of new condo developments in the GTA. Builders are still aggressively selling condos. Houses on the other hand have slowed down, although there have been a few recent releases in the North-East end of the GTA.

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  3. Just heard another ad for registration of a new release. The new condo developments have seemed to slow down a bit but are continuing.

    Treviso Condos
    Dufferin & Lawrence, Toronto
    http://www.trevisocondos.com/

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