Bankrate

 

January 23, 2013

 

Title: Housing data continue to weaken

Subtitle:  However alternatives not particularly promising either

 

A variety of residential real estate data this released month ranging from existing home sales to housing starts and new home prices, point to a weakening market. Experts say this trend will likely persist as the year unfolds, though the damage should be contained.

 

According to the Canadian Real Estate Association existing home sales barely budged during December, falling by just 0.5 percent compared to November. On a year-over-year basis the data look worse though, with non-seasonally adjusted activity down 17.4 percent from December of 2012. The average selling price or existing homes was also weak, rising to just 0.3 percent to $363,740 from the same month the previous year. That may sound OK, but the increase is less than inflation, which means that housing prices actually fell during the period in real terms.

 

New home prices fared slightly better. According to Statistics Canada the average price of new homes sold during the 12 months to November 2012, rose by 2.2 percent, which is slightly higher than inflation. That said, the increase is lower than the 2.4 percent jump recorded the previous month.

                                                           

The lower sales activity and weakening pricing power were reflected in new home construction activity. According to the Canada Mortgage Housing Corporation, housing starts slipped slightly during December to 197,976 units, from the 201,376 units recorded the previous month.

 

“In contrast to what is happening south of the border, the Canadian housing market is slowing,” says Marie-Claude Guillotte, an economist at Laurentian Bank Securities. “All indicators point that this trend should continue throughout 2013.”

 

Guillotte notes that housing starts, which have been running at a pace far faster than household formation (176,000 households were created on average between 2006 and 2011 censuses), are due for a slowdown so that inventories of unsold homes can get back in line. These inventories have risen to 6.7 months worth of sales on a national basis and to above ten months, in Quebec, British Columbia and the Maritimes.

 

That said, the Bank of Canada today gave existing home owners who are worried about possible price declines few reasons to sell today, leaving its policy interest rate unchanged at 1.0 percent. The low rate pushes home ownership on two fronts. First, since the central bank’s policy rate influences mortgage rates, it thus pushes borrowing costs down and encourages people to stay in their homes and renters to buy. The low rates also provide a significant disincentive for home sellers, because if they put the proceeds from their sale in the bank they will get little in the way of interest income.

 

The good news says Guillotte is that the abundance of properties on the market will give prospective new home buyers plenty of choices. In addition she says, that recent data, notably those from the labor market, indicate that the economic picture is unlikely to deteriorate to the extent it they would force homeowners to sell.

 

The hope is thus that this would limit any price correction that may occur.

 

peter@peterdiekmeyer.com

 

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