After a solid sales report from the Canadian Real Estate Association, one economist says the likelihood of a housing correction is “much smaller now.”
Fears that Canada’s residential real estate market is headed for a downturn appear to have subsided following a positive June sales report from the Canadian Real Estate Association (CREA). Month-over-month resales (on a seasonally adjusted basis) rose for the fourth consecutive time in June. The Multiple Listing Service (MLS) Home Price Index is also up for the fifth straight month.
I asked Robert Hogue, a senior economist at RBC Economics, if these numbers mean we’ll avoid a slump this year. “We’re not ruling out any major correction completely,” he told me. “I would say that the probability of this taking place is much smaller now than it might have been, say, five or six months ago. The recent developments in terms of home resales are indicating that things have not only stabilized but picked up a bit.”
A correction in the housing market could have a ripple effect on the broad economy in numerous ways. For example, lower housing prices often trigger a drop in consumer spending because homeowners recognize that their net worth has taken a hit. Unemployment can rise too, in construction trades and other areas of the economy related to the home improvement industry.
Highlights from the June CREA report:
- Home resales rose 3.6% in June. That’s a particularly impressive number given resales jumped 4.4% the previous month. The second quarter provided a remarkable 6.4% gain relative to Q1. That’s the best quarter-over-quarter result we’ve seen since 2010. Sales have now rebounded to the level they were before last year’s move by the federal government to tighten mortgage lending rules.
- Demand and supply remain in check. The sales-to-new listings ratio reached 0.54 in June. That is well within the 0.4-0.6 range experts consider a balanced market. The ratio was at 0.52 in May.
- The national composite MLS Home Price Index is up over last month, albeit just slightly. The index measured an annual rate of increase of 2.3% in June.
- Month-over-month resale figures rose across the country. Vancouver is up 6.4%, Edmonton 10%, Calgary 0.8% (a low number likely due to the flooding), Regina 5.3%, Saskatoon 15.8%, Winnipeg 7%, Toronto 0.9%, Ottawa 2.3%, Montreal 3.4% and Halifax 2%. No month-over-month declines were reported.
Hogue told me that while RBC Economics did not predict a 2013 correction, “we did and still do forecast a moderation in residential investment,” he said. “This is a component of the Canadian economy that will not contribute to growth this year.”
Of course, interest rates will figure in how all of this plays out. In his monthly housing update, Hogue wrote that higher rates in the second half of next year “will exert some downward pressure on the market.” Don’t count on big year-over-year gains in the price of your home anytime soon.
More on buying and selling your home:
- Newlywed home-buying mistakes
- Home-staging tips from the pros
- Should you sell your own home?
- Ten steps to buying a home
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