Canadian housing sales continue to show strength
The Canadian housing market continues to defy those who have long predicted its collapse.
If anything, the market seemed to pick up steam in October as sales across the country ended up the best they have been since January.
Sales of existing homes rose 1.2% in October from the previous month, building on September’s 2.5% gain, the Canadian Real Estate Association (CREA) said.
The upward push caused CREA to revise its sales predictions slightly for 2011. It now says sales will rise 1.4% from a year ago, instead of 0.9%.
“The continuing strength of home sales activity in the face of ongoing financial volatility speaks volumes about the con-fidence of Canadians in our housing market,” said Gary Morse, president of CREA.
Even going into 2012, CREA doesn’t see much change in the market since interest rates are near record lows. CREA calls for a relatively minor 0.5% reduction in sales in 2012.
The industry has seen annual sales holding steady at about 450,000 for each of the past three years.
Prices have also shown a steady upward trajectory and are now forecast to attain an average of $362,700 in 2011, which would be a 7% increase from the year before.
Next year, prices are expected to remain flat – something most people in the real estate industry see as an accomplishment under the present economic environment.
“Home sales actvity over the past couple of months suggests buyers are confident that the Canadian economy will remain relatively unscathed by global economic risks, since every home purchase is a homebuyer’s vote of confi-dence in the future,” Gregory Klump, CREA’s chief economist, said Tuesday.
He said there is a strong feeling fiscal policy will be coordinated to give housing any support it should need in the event of an economic pullback.
So far, the industry seems to be getting the support it needs from low interest rates, which have kept buyers in the market. Variable rate mortgages tied to prime are still available as low as 2.7%, while a fiveyear fixed-rate closed mortgage is now being discounted to 3.19%.
CREA said a total of 397,561 homes have traded hands this year, a 1.8% rise from the first 10 months of 2010, but in line with the 10-year average.
Toronto continued to carry the national market in October: Sales were up 14.3% from a year ago. The actvity in Canada’s largest city helped boost overall sales activity, which rose 8.5% from a year earlier.
Prices across Canada continued to moderate. The 5.5% year-over-year increase was the smallest since January and the average price of a home sold in October was $362,899.
The consensus among economists is that the housing industry may not have much more to give in price or sales increases but nor is it set for a massive decline.
“The fact that prices are overvalued today does not necessarily mean they will crash tomorrow,” said Benjamin Tal, deputy economist with CIBC World Markets.
He said a “violent market meltdown” would need a catalyst, such as the subprime crisis, or a sharp increase in interest rates, such as those of 1991.
“We do believe the housing market in Canada will stagnate in the coming year or two,” said Mr. Tal.
A report from TD Economics indicates housing is a key component of the Canadian economy. It noted the construction industry accounts for 10% of gross domestic product.
Source: Garry Marr, Financial Post
