Record low interest rates and a lack of houses on the market have rekindled demand for Canadian real estate, helping to pull the industry out of its sales slump and setting the stage for the most balanced spring market in years.
The Canadian Real Estate Association said Monday that although prices were flat in October and sales slid more than 20 per cent compared with a year earlier, the market 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.
"It seems to me the Canadian housing market has been either feast or famine," said BMO Nesbitt Burns economist Douglas Porter. "But now buyers are facing low rates on one hand, and daily volleys about how bad the market is on the other. That should keep things from getting overly hot, and gives me reason to believe we could have a balanced market in the year ahead."
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 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 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 and Quebec introduced harmonized sales taxes that made the services associated with buying a home more expensive.
Would-be buyers also faced a barrage of warnings from organizations such as the Bank of Canada, the OECD and International Monetary Fund, all of which have cautioned that as interest rates rise, many Canadians might not be able to make their mortgage payments.
But mortgage rates have actually dropped in the past three months and now sit at all-time lows. A survey by the Canadian Association of Mortgage Professionals released last week showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.
"There are many reasons to now be optimistic," said TD Bank senior economist Pascal Gauthier, who called for prices to fall 10 per cent from peak to trough but now expects to issue a more upbeat forecast later this week. "I think there are now limits to both the upside and the downside - things may have firmed up quicker than we expected."
With the number of houses listed for sale sharply lower than in July, prices are expected to stay firm as buyers compete 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.
"Affordability drives sales and record low mortgage rates are driving affordability," said Phil Soper, the chief executive officer of Brookfield Real Estate Services. "I think next year should look a lot like the recent market - with relatively flat prices and fewer overall transactions."
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