Oct 16, 2010

Home sales in Canada up three per cent , recession to be over by mid of 2011 : CREA

Home sales in Canada were down 20 per cent in September from the record highs of last year in what the chief economist of Canada's main real estate industry group described Friday as a trend that will continue well into next year.

The Canadian Real Estate Association (CREA) said Friday that 33,913 homes were sold in September, up three per cent from last month and the most since May.

But sales were still significantly lower than the 42,431 recorded last September, when buyers flocked to the market as the economy showed signs of recovery from the recession.

"They were pretty strong year-ago numbers, so that's to be expected," CREA's chief economist, Gregory Klump, said of the drop in comparative numbers.

However, he noted that this September's sales reflected similar sales for the month in 2006, 2007 and 2008.

Prices were little changed from last year at $331,089.

Unfavourable year-over-year comparisons are expected to continue into the second quarter of next year because sales didn't start to drop from post-recession record highs until this spring, Klump said.

"We certainly do expect continued year-over-year comparisons to be negative until at least the end of the first quarter of 2011," he said.

"If you take a look at what happened from the standpoint of sales activity in late 2008, early 2009, they fell to the lowest level in a decade. And when it became apparent that the worst of the economic crisis was behind us, a lot of deferred purchases began to flood back into the market."

A pull-forward effect in advance of looming higher interest rates, tighter mortgage qualification rules and a new sales tax in Ontario and British Columbia that took effect this spring, further contributed to distorted year-on-year comparisons.

The impact of the recession on delaying purchases until late last year combined with the temporary factors that pushed sales ahead this spring condensed a flurry of demand into a very short time frame.

"It's going to take a year for those things to fall out of the numbers," Klump said.

"Even with steady numbers, compared to year ago levels, you're still going to see comparisons that are going to fall short of some pretty extraordinary sales activity one year ago."

Sherry Cooper, chief economist at the Bank of Montreal, said back-to-back advances in August and September figures followed an ugly slide in the first seven months of the year that saw sales plunge 30 per cent from peak to trough.

"The Canadian housing market has returned to balance, which still feels like a stark change from the rip-roaring sellers’ market seen (earlier this year)," she said in a note.

The slight monthly rise in sales can be attributed to falling five-year fixed mortgage rates, which have helped offset a decline in consumer confidence as the economy weakens, she added.

Shahrzad Mobasher Fard, an economist at TD Economics, said the pullback in mortgage rates will continue to stimulate borrowing and help home sale activity.

"This, together with recent developments in existing home sales activity, signal the likelihood that we are closer to a balanced market position than previously envisaged. Some firming up in existing home sales and prices may consequently be in sight," he said.

However, he warned the decelerating pace of Canada's economic growth, weak prospects for employment and income growth, and rising household indebtedness will limit Canadian existing home sales activity.

Two-thirds of local markets posted monthly increases in September, led by Winnipeg, Calgary, and Montreal, CREA said. Sales declined in only one province, Nova Scotia.

The number of new property listings coming on the market last month was up less than one per cent from August and remained 15 per cent below this year's peak in April. At current levels of activity, it would take an estimated 6.6 months to sell all the homes on the market at the end of September. That's down from 6.9 months in August and 7.2 months in July.

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