Canadian housing market expected to even out by Spring

According to a report in yesterday’s Globe and Mail, low interest rates and a lack of houses on the market should create an equilibrium in the Canadian real estate market by Spring of next year. The Canadian Real Estate Association announced on Monday that although prices had been flat in October and sales slid more than 20 per cent compared with a year earlier, the market still posted its third straight month of increased sales.

In a sign of stabilization after two years of wild fluctuations, CREA said October sales were halfway between the lows of December, 2008, and the record high of December, 2009. Economists said October’s data likely means the market bottomed out in July; while prices won’t rocket to previous highs any time soon, it’s unlikely they have much farther to fall.

After slowing in the recession of 2008, sales activity reached a fevered peak in December, 2009, as buyers rushed back into the market. Average resale prices for a Canadian home peaked at an all-time high $346,881 last May, causing concern that cheap money was driving prices to unsustainable levels. The average resale price in October was $337,842, CREA said.

The housing market came to an abrupt halt last July, with major regions such as Vancouver and Calgary posting sales drops of nearly 45 per cent and prices pulling back from May’s high. Several factors were cited for the decline: The federal government introduced rules that made it more difficult to qualify for a mortgage, and Ontario, Quebec and British Columbia introduced harmonized sales taxes that made the services associated with buying a home more expensive.

With the number of houses currently listed for sale significantly lower than in July, prices are expected to stay firm as buyers compete for the few homes available. The months of inventory – the amount of time it would take to sell everything that is for sale, at the current rate of sales – sat at 6.2 months in October, down a full month compared with the July figure.

That doesn’t mean prices are likely to catch fire again in the spring, when activity traditionally accelerates, but it should help keep prices from dropping as buyers and sellers hit the market in equal numbers.

For the full report, please access Canadian housing market looks forward to Spring.

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