A record July for Canada's housing resale market is a sign of improving confidence in the Canadian economy, but it may be difficult to sustain the rally in the coming months.
The Canadian Real Estate Association reports that 50,270 homes traded hands on the Multiple Listing Service in July.
That's 18.2 per cent more than in July, 2008. On a seasonally adjusted basis, resale activity is only 1.4 per cent below the peak reached in May, 2007.
"It's the hottest market I've seen in recent memory," said Sandy Kennedy, a Brampton, Ont., real estate agent who sold 20 homes in July after selling only four or five homes in each of January and February.
He said the activity was being driven by first-time buyers.
The Vancouver market had the biggest jump, with a 90-per-cent year-over-year increase in the number of sales.
Other cities saw smaller increases, with Edmonton and Toronto up 28 per cent, Calgary up 22 per cent and Montreal up 19 per cent, the Canadian Real Estate Association said.
"It's a pretty remarkable turnaround," said Eric Lascelles, chief economics and rates strategist at TD Securities.
The renewed interest in the market is primarily in the more affordable segments, said Gregory Klump, chief economist of the Canadian Real Estate Association, who attributed the rebound to three factors: low interest rates, a perception that the worst of the downturn is over and prices that are starting to increase.
Each factor is spurring people to make a commitment, something Vancouver realtor John MacKenzie has seen in his conversations with buyers he first saw checking out the market many months ago.
"People who have gone through things without losing their job see that rates are good. People who are on the fence figure it's better to get in now versus a year and a half ago," said Mr. MacKenzie, who sold no homes in November, 2008, or February, 2009, but sold four this July.
Even mortgage rates that started to rise in June did not deter buyers.
"That can prompt the greatest activity," Mr. Lascelles said. "People race in even though they've missed the bottom."
Nonetheless, as prices and mortgage rates start to increase further, it may be difficult to keep the rally going.
"This is not sustainable in the long run," Mr. Kennedy said.
Housing inventories are declining, with 219,982 homes now listed on MLS.
That's a decline of 12.4 per cent from July, 2008, the largest year-over-year decline in six years.
Fewer homes on the market could lead to further jumps in the rate of price increase.
The weighted national average price increased 4.6 per cent in July, 2009, from a year earlier.
The unweighted average price, which is somewhat skewed by price rebounds in the traditionally more expensive Western Canadian housing markets, increased 7.6 per cent over 12 months to $362,800.
Shrinking demand may also slow the current rally before long because "the big backlog of potential buyers is being drawn down," Mr. Lascelles said.
The buoyant market for existing homes stands in contrast to new housing starts. They declined by 4.1 per cent in July from the month before, and the coming implementation of the harmonized sales tax in British Columbia and Ontario could affect purchase decisions for new homes.
The tax change is expected to kick in on July 1, 2010. Each province is offering tax rebates for new-home purchases, but those selling for more than $400,000 may be subject to more tax.
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