Housing Affordability and Home Sales Across Canada - RE/MAX 2007 Report

First-time buyer tenacity boosts home sales despite further erosion of affordability, says RE/MAX

Heated Spring real estate market forecast from coast-to-coast.
Higher housing values, tight inventory levels, and all-out bidding wars have yet to deter first-time buyers in their quest to realize homeownership in major Canadian centres this year, according to a report released today by RE/MAX.

Despite a decade of year-over-year price increases, compounded by challenging market conditions this year, entry-level buyers continue to be a driving force in real estate. Their undaunted enthusiasm is expected to translate into sales at or ahead of last year’s record levels in the Spring.

The RE/MAX Affordability Report, which highlights first-time buying activity and trends in 13 housing markets across the country, found that substantial price increases have had little impact on buyer intentions. The greatest year-over-year price appreciation occurred in Edmonton, Calgary, Saskatoon, and Kelowna, where averages rose 52, 29, 26, and 23 per cent respectively. Average price in the country’s most expensive market – Greater Vancouver – has jumped 11 per cent, topping the half million-dollar mark. While prices in these markets may now seem costly, entry-level product such as condominiums can start at half the average price.

Buyers are finding the means necessary to enter the market, even in the western provinces, where double-digit price gains have been reported and sales to listings ratios hover above the 80 per cent mark. Purchasers simply refuse to be priced out of the market, even though household income has not kept pace with housing appreciation. Something’s got to give -- and the trends identified in this report show it’s the how, what, where and when of the equation.

Case in point is the surge in condominium sales from coast-to-coast. Affordability and accessibility have made the condominium lifestyle a popular choice. Condominiums now represent just under one in every two sales in markets like Vancouver and Victoria. In Edmonton, Calgary, and the Greater Toronto Area, close to one in every three sales involve a condominium apartment or town home. In smaller markets like Saskatoon, Regina, and Winnipeg, condominiums are gaining momentum. Condominium sales represent approximately 12 per cent of total residential sales in Halifax-Dartmouth and Ottawa.

Low interest rates and solid economic performance in most major Canadian centres have also played a substantial role in providing purchasers with the confidence to go out and buy their first home. Yet, in some centers, there are other motivating factors at play. Price increases, for example, are a reality in the marketplace. One year can set you back – from location to house size – and your dollar just doesn’t have the same purchasing power.

Yet, buyers have found inventive ways to address that as well. Innovative financing has allowed a growing number of first-time buyers to enter the marketplace. With most prepared to up the ante to realize “the dream of homeownership”, unique new mortgage products with longer amortization periods are helping to make mortgage payments easier to carry.

The offloading of family wealth and inheritance are also factors influencing the up swell in home-buying activity. Some first-time buyers are digging into RRSPs and borrowing money from parents, while others are looking to offset carrying costs through in-law suites, now factored into debt service ratios by a growing number of lending institutions.

You may use this link to download and read the entire report



For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Canadian Economy looks to be in good shape says report by RBC

Canada’s economy ends 2006 on firmer footing

• Canada’s economy grew at a sub-potential 1.4% annual rate in the fourth quarter of 2006, slightly stronger than the 1.2% growth expected by forecasters. Third-quarter growth was revised up from 1.7% to a 2% annualized increase, matching the second-quarter pace.



• The economy ended the year on firmer footing with a 0.4% month-over-month growth rate in December, outpacing monthly gains in both November and October. For the year as a whole, the economy posted a 2.7% real growth rate.



• Domestic demand growth slowed in the fourth quarter, while the trade sector supported growth. A sharp drop in the pace of inventory accumulation trimmed about four percentage points off the quarterly growth rate.



• Export growth outstripped imports for the first time in six quarters. As a result, the trade sector boosted GDP growth in fourth quarter after the sector trimmed growth in the other three quarters of 2006.



• Consumer spending slowed but still held up reasonably well, posting a 3.1% annual increase with most of the strength coming from purchases of services and durable goods. Business fixed investment picked up pace mainly on the back of investment in non-residential structures with spending on machinery and equipment slowing.



• The weak spot in the report was the sharp slowing in inventory investment, which has weighed heavily on growth in three of the past four quarters. Non-farm inventories were drawn down for the first time in 10 quarters.



• We expect consumer and business spending will accelerate in early 2007 but that trade, which acted as a support to the economy in the fourth quarter, will be a drag once again as import demand outstrips exports. The sharp inventory correction that occurred in 2006 is unlikely to continue in 2007.



• Our optimism about the near-term outlook makes it difficult for us to see the slower growth in the fourth quarter affecting the Bank of Canada’s policy stance and we expect that the overnight rate will hold steady at 4.25%.

Consumer sentiment continues to sour - University of Michigan index

• Consumer sentiment continued to sour in second half of February according to the University of Michigan index of consumer sentiment, with the index dropping to 91.3 from 96.9 in January. The early February report showed that the index slipped to 93.5 from January’s elevated level.



• Both the current and future indices fell, with the present conditions index dropping 4.6 points and the expectations index falling 6.1 points. This survey runs counter to the upside surprise in the Conference Board’s measure, which popped up to a pre-9/11 high in February.



• Consumer spending was slightly softer in January and the mixed read on the confidence surveys plus instability in equity markets is likely to prevent consumer activity from matching the very robust pace of late 2006. While the Michigan index stood at its lowest level in five months, it remained above the levels recorded in much of 2006 and does not point to a sharp slowing in consumer activity ahead.

March 2, 2007

Source: "Financial Markets Monthly", Economics Departnment, RBC Financial Group.

For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Inflation creeps higher and Canadian productivity woes - when will it end?

HIGHLIGHTS
- U.S. and Canadian core inflation creeps higher while energy sinks total inflation
- Canada’s recent productivity woes due in large part to the natural resource sector


While it won’t top the glamour of this Sunday’s
Academy Awards, this was CPI inflation week in North
America. Gyrating energy prices continue to steal
the spotlight in driving total inflation as lower
gasoline prices helped restrain the all-items index
in both countries in January. Since current energy
prices are still being compared to their
pre-nosedive levels observed a year ago, total
inflation will likely remain on the weak side
through this summer. Meanwhile, core inflation rose
slightly in both Canada (from 2.0% to 2.1%) and the
U.S. (from 2.6% to 2.7%) due in large part to
outsized jumps in several of the individual
components. The return of winter in Canada pushed
the clothing price index into positive territory,
temporarily breaking from the more familiar story of
falling prices. Travel services also leapt higher in
the month as Canadians either looked to escape
(travel tours rose 0.4%) or embrace (traveller
accommodation jumped 2.5%) the colder weather. In
the United States, medical costs and tobacco prices
fuelled the monthly increase.


Abstracting away from the monthly wiggles, core
inflation on both sides of the 49th parallel has
eased slightly in recent months, remaining in what
amounts to a very stable holding pattern. The only
problem is the relative altitude. While core in
Canada remains comfortably around the Bank of
Canada’s 2% target, in the U.S., core inflation
remains stubbornly high, sitting above what is
thought to be the Federal Reserve’s comfort zone of
between 2.0 and 2.5%. So while both central banks
are forecast to remain on the sidelines in 2007, the
Bank of Canada will have greater flexibility to
respond to unforeseen economic shocks. By
comparison, the Fed will likely be forced to
maintain their hawkish stance on monetary policy
until price pressures ease further.


Cooling housing market helps contain core in Canada


The booming housing market, especially in Western
Canada, held the starring role in determining the
path of core inflation over the last year as
blockbuster increases in the homeowner’s replacement
cost (HRC), which is keyed off of the new home price
index, pushed core inflation above the Bank’s 2%
target in late 2006. More recently, the pace of home
price appreciation has slowed (even Alberta is
showing signs of easing as the year-over-year
increase in new home prices has fallen from 52% last
August to 42% in December). This has translated to
more subdued increases in the HRC and helped contain
core inflation. This trend is likely to continue as
home price appreciation is expected to cool further
in the months ahead. Core inflation will also be
restrained by the recent fall in mortgage rates,
which will gradually pull the mortgage interest cost
component out from the shadow of higher rates
observed a year ago. All told, a more balanced
housing market will help keep Canadian inflation on
target.


OER keeps U.S. core elevated


The fly in the U.S. inflation ointment remains the
service sector – which has been tracking well above
3% for the last two years. While part of this
momentum can be attributed to components such as
medical care and education, the owner’s equivalent
rent (OER) component, with its 30% weight in core
CPI, has been particularly bothersome. The OER is an
imputed price (i.e. not directly observable)
representing the amount that a homeowner would earn
from renting their home. One of the quirks of the
OER is that it is very slow in incorporating changes
in the cost of household utilities. Given the
pronounced fall in energy prices since mid-2006, the
OER is likely overstating the true momentum in core
inflation. Nevertheless, the year-over-year increase
in the OER has remained unchanged in each of the
last three months, tentatively suggesting some
moderation in the months to come. Further easing in
this measure will come as great comfort to the
Federal Reserve.


Statistics Canada and the case of the missing
productivity


In what was an Oscar-worthy moment, Statistics
Canada opened the envelope on their explanation of
the recent productivity-sapping divergence between
real GDP growth and employment. Those looking for
revisions were sorely disappointed as the study
sought to explain and not correct the recent data.
The main cause of Canada’s weak productivity
performance has been a rotation of output towards
the relatively less productive natural resource
sector (and in particular mining). For example, in
2006 output per hour worked declined by 10% in the
resource sector – stripping a full percentage point
from economy-wide labour productivity. Weak
productivity growth was also noted in the
manufacturing sector which has faced its share of
difficulties ranging from the elevated value of the
Canadian dollar to enhanced global competition.
Labour shortages, especially in Alberta, have also
constrained productivity growth as lower educated
and both younger and older workers have been drawn
into the labour market. In Alberta, over half of all
the employment growth observed in 2006 was people
with less than a high-school education. Finally,
there have been an inordinate number of one-off
shocks that have undercut productivity including
strikes, production delays caused by accidents, and
warmer weather constraining utilities output. It
remains an open question if productivity will
improve once these temporary shocks disappear into
the rear-view mirror. An encouraging development is
that investment growth has remained strong,
suggesting that new productivity-enhancing capital
equipment may eventually support a recovery in
labour productivity. Until that time, the Bank of
Canada will be more tolerant of slower real GDP
growth as their estimate of Canada’s potential
economic growth rate may come under further downward
pressure.


While Canadian labour productivity remains in a
quagmire, there was some positive news from new
retail and wholesale trade data suggesting that the
economy may recover strongly from what will likely
be a very dismal final quarter of 2006 (we get the
data next week). The 2.3% jump in December’s retail
sales came as a great relief given the anaemic pace
of spending in previous months. While it was too
late to save Q4, December’s turnout points to strong
holiday sales (Chuck Norris action figures were
reportedly flying off the shelves) and solid
momentum into the first quarter of 2007. All told,
given December’s handoff, first quarter real GDP
growth could increase by as much as 3.0% annualized.

Article courtesy of R.Paul Chadwick Manager of Residential Mortgages, TD Canada Trust


For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Up and coming Areas and Housing Types to watch - REMAX

Up-and-coming areas also provide ‘blue chip’ returns in 2006, says RE/MAX

Mississauga, ON (February 22, 2007) – While strong demand for single-detached homes in traditional blue-chip neighbourhoods pushed housing values higher, up-and-coming communities also experienced a solid return on investment in 2006, says RE/MAX.

Swansea, Roncesvalles, Parkdale (W01) lead the charge with the average price of a single-detached home rising 18.02 per cent ($544,196 to $642,269) in 2006. Offering older, character homes in close proximity to the sought-after area of High Park/Old Mill, the area has benefited enormously from the renovation boom of recent years. Blue-chip, central-core neighbourhoods such as Hoggs Hollow,York Mills, Bridle Path (C12), Lawrence Park (C10), and Bayview Village (C15) also saw significant price appreciation at 13.64 per cent ($1,238,030 to $1,406,909), 12.38 per cent ($963,813 to $1,083,108) and 12.24 per cent ($519,018 to $582,528) respectively. Rounding out the top five was Scarborough Bluffs (E08) at 10.95 per cent ($315,969 to $350,580), an area bordering on the coveted Beach community.

“There’s no question that the areas that have undergone considerable revitalization in recent years have seen serious upward pressure on housing values,” says Micheal Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada. “Affordability has played a major role as first-time buyers look to tired, older neighbourhoods in close proximity to the central core. The decision to invest their money in both their home and community is a trend that is expected to continue in 2007.”

Of the 62 Toronto Real Estate Board districts examined by RE/MAX, just under 10 per cent (six) experienced double-digit increases in the single-detached category in 2006. This time last year, approximately one in five districts reported a double-digit increase in the average price of a single-detached home—an indication that overall appreciation has slowed in the Greater Toronto Area. A number of factors have contributed to the slowdown, including an influx of new listings. As a result, most districts—including many of 2005’s top performers—report gains ranging from four to six per cent, which is in line with the GTA average of five per cent overall (for all types of residential properties).

“All boats rise and fall with the tide,” says Polzler. “However, blue chip neighbourhoods in the central core continue to hold their own – with three of the top six performing markets located within the city centre. The value of single-detached homes rose 7.5 per cent in the central core in 2006, with average price hovering at $816,938 at year-end (up from $759,906 one year earlier).”

In terms of condominium apartment and townhomes, three districts reported double-digit gains in average price (on par with last year’s figure). Leading in terms of percentage increase was Hoggs Hollow, York Mills, Bridle Path (C12), where the average price of a condominium climbed 21.78 per cent from $407,594 in 2005 to $496,350. Affordability played a significant role in Humber Heights, Kingsview Village, and Richview (W09) where condominium values rose 12.79 per cent, from $168,491 to $190,042 in 2006. In C02, Yorkville, Annex, Summerhill and South Hill, average price escalated 11.31 per cent from $444,582 to $492,861. Ranking fourth and fifth were the Queensway and Sunnylea (W07), where average price rose from $248,283 to $270,558 in 2006 and Lawrence Park (C10) where values jumped from $300,229 to $326,564 – an increase of 8.97 and 8.77 per cent respectively.

“New condominium construction continues unabated in key locations,” says Polzler. “In Yorkville, for example, we’ve seen a major shift to upscale multi-unit residential. In fact, some high-rise buildings specifically target luxury buyers, with prices starting at $1 million per unit. We expect demand for condominiums to be strong for years to come as both affluent baby boomers and out-of-town investors enter the marketplace.”

Condominiums within the central core also saw the greatest increase, with average price rising 5.9 per cent to $292,064, an increase of more than $15,000 over the 2005 figure. In total, seven districts reported a decrease in the average price of a condominium apartment or townhome, ranging from just under one per cent to close to six per cent, in 2006.
RE/MAX is Canada's leading real estate organization with over 16,880 sales associates situated throughout its more than 630 independently owned and operated offices across the country. The RE/MAX franchise network, now in its 33rd year of consecutive growth, is a global real estate system operating in over 63 countries. More than 6,740 independently owned offices engage 119,400 member sales associates who lead the industry in professional designations, experience and production while providing real estate services in residential, commercial, referral, relocation and asset management. For more information, visit: www.remax.ca

For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829
E-MAIL: mark@mississauga4sale.com
Website: Mississauga4Sale.com

Over 25 Years Many Home values see annual double-digit Increases: Re/Max

Residential real estate values in major Canadian markets post extraordinary gains over 25-year period, says RE/MAX

Mississauga, ON (January 24, 2007) – Residential housing values in virtually all major Canadian centres have posted significant gains since 1981, with almost half reporting double-digit appreciation annually, according to RE/MAX. Leading the charge is Barrie, Ontario with an exceptional 372 per cent increase in average price ($51,665 to $244,000) over the 25-year period.

Despite the cyclical nature of the business, an analysis of 17 housing markets across the country found that price appreciation topped 240 per cent in seven areas, including Barrie (372 per cent), St. Catharines (329 per cent), Hamilton-Burlington (325 per cent), Ottawa (297 per cent), Greater Toronto Area (290 per cent), Greater Vancouver Area and Halifax-Dartmouth (242 per cent increase). Victoria reported a 229 per cent increase, London experienced an upswing of 228 per cent, Calgary was up 227 per cent, and Kelowna rounded out the top 10 at 211 per cent.

“Conventional wisdom used to be that real estate was a relatively safe, long-term investment that typically appreciates at a rate of five per cent annually,” says Michael Polzler, Executive Vice President and Regional Director, RE/MAX Ontario-Atlantic Canada. “These statistics clearly tell a different tale. In the top ten markets, real estate values rose at least eight per cent or more on an annual basis. Even the worst performing market in the country experienced an increase of close to six per cent annually since 1981.”

Nationally, average price appreciated 264 per cent (11 per cent annually) in the 25-year period, rising from $76,021 to an estimated $277,000 in 2006. Although a number of factors contributed to the substantial upswing in values, perhaps the greatest influence was a 25 per cent increase in Canada’s population (which rose from 24,820,393 to a projected 1,021,251 in 2005).

“The results are nothing short of remarkable, given the economic volatility of the marketplace in the past 25-year period,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “This is especially true in recent years when serious external factors such as 9/11, SARS, and an outbreak of forest fires barely registered on housing activity. Any one of these disasters would have had a significant impact on real estate markets in the 1980s.”

Thanks to economic diversity, today’s housing markets are more insulated than in the past. Alberta’s pro-business stance, for example, has served to attract major corporations to the province in recent years. Saskatchewan’s economic base has shifted from agriculture to natural resources virtually overnight. In Ottawa, an economy once solely dependent on the one major employer in the area, the evolution of high-tech has played a substantial role in the overall health of the residential real estate market.

“Immigration has also bolstered residential home sales, particularly in Canada’s largest cities,” says Polzler. “Approximately 250,000 new Canadians arrive annually and we know from experience that many will buy a home within five years of immigrating. Job opportunities have also prompted in-migration across the country as purchasers from more rural communities seek employment in major metropolitan areas.”

Baby Boomers have also been a powerful force behind housing demand, explains Ash, particularly in the upper end where sales have surged in recent years. “Boomers have demonstrated their buying intentions through the purchase of primary residences, recreational and retirement properties and even in financially assisting their children—the next generation of home-buyers—thereby stimulating the first-time segment as well.”

RE/MAX is Canada’s leading real estate organization with over 16,880 sales associates situated throughout its more than 630 independently owned and operated offices across the country. The RE/MAX franchise network, now in its 33rd year of consecutive growth, is a global real estate system operating in over 63 countries. More than 6,740 independently owned offices engage 119,400 member sales associates who lead the industry in professional designations, experience and production while providing real estate services in residential, commercial, referral, relocation and asset management. For more information, visit: www.remax.ca



The graph below shows the average residential home price in the GTA from 1981 to 2007, the past 25 years! Click the image below to see the graph in a much larger version



For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

Reverse Mortgage - Is it right for you?

What is a Reverse Mortgage?

First, what a reverse mortgage is NOT:

A reverse mortgage is not “a way for the bank to get your house”
It is not a traditional home equity loan
It is not based on income or credit levels
It is not available to homeowners under the age of 62
It is not free money
It is not a cure-all
It is not a decision to be taken lightly

What a reverse mortgage is: a good tool for financial planning and flexibility in the golden years. There are only a very few requirements for eligibility. The borrower must own and live in the home as a primary residence and be 62 years of age or older. If husband and wife are both on the title, both must be over the age of 62. However, visit the Reverse Mortgage Page to find out more information on this particular fact.

In addition, the home itself must be of a type that qualifies for the reverse mortgage program. The vast majority of single family homes qualify, as do most condominiums, townhomes, 2-4 unit owner-occupied dwellings and manufactured homes. Your income and credit levels, however, do NOT matter.

To go through the process of getting a reverse mortgage you will need to speak with a reverse mortgage originator or provider. This person will guide you through the preliminary steps, including counseling, home appraisals, inspections, and choice of loan specifics. It is very important to feel comfortable with your lender. Feel free to speak with as many people as you need in order to gain information and feel comfortable. Click here for reverse mortgage lenders.

There are a number of options for how to “structure” the money received.

1. Receive a one time lump sum.

2. Receive the money monthly.

3. Receive a credit line that provides flexibility.

4. Use a combination of the above methods.

Once you receive the money, there are virtually no restrictions on the way in which it can be used.

You MUST:
Repay existing debt, including the existing mortgage

You Can:

Make Home Improvements
Finance Regular Living Expenses
Ease Healthcare Costs
Take a Trip to Somewhere You’ve Always Wanted to Go
Give Gifts to Your Family and Friends

It almost seems too good to be true. There are, however, as with everything these days, costs involved. There is an origination fee, closing costs, a servicing fee, mortgage insurance, and interest. These costs come from the proceeds of the loan. You pay very little directly out of your pocket.

You should also know that you cannot lose your home at any time during the life of the loan for failure to make payments. THERE ARE NO PAYMENTS TO MAKE. The loan does not come due until you permanently leave the home or the last borrower dies. The home must be kept up to reasonable standards, it must be insured, and the property taxes must be paid.

Default risk is one of the ways in which a reverse mortgage differs from a traditional mortgage or home equity loan. With those traditional products there is a risk of default and therefore a chance you could lose your home. On the other hand, there are no payments to make with a reverse mortgage. Therefore, as long as the property is kept to a reasonable standard, you will always have somewhere to live.

In addition, you can never owe more than the value of your home. Even if you have been paid more than your home is worth, you can only owe the value of your home. When the loan comes due, you or your heirs can either pay off the loan with existing funds or sell the house in order to satisfy the loan. Excess proceeds from the sale go to your or your estate.
This article courtesy of www.reversemortgagepage.com

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

No doubt the 2006 Real Estate Market has cooled compared to previous years

Real Estate Market has become Steady

There are concrete signs that the U.S. housing market is falling back to earth and there is widespread recognition that this will severely dampen the performance of the U.S. economy. This has led to concerns that Canada might have a similar experience. There is no disputing that Canadian housing markets have been booming in recent years with extremely high levels of starts, sales and price gains in many markets. This has periodically fuelled concerns that a housing bubble might have formed. However, TD Economics has consistently argued that Canada’s real estate markets have generally lacked the degree of speculation that dominated past boom-bust cycles and the excesses have been far less than those evident than in the United States. We still hold that overall view, but developments in a few Western cities are clearly flashing warning lights. There is no question that the recent dramatic price gains in Calgary and Vancouver are unsustainable and that these urban centres are vulnerable to significant moderation, including the possibility of a pullback in prices at some point in the future. Edmonton is also experiencing explosive price growth, but affordability remains high. In contrast, the other major Canadian real estate markets appear to be in much more balanced shape and housing activity in Central and Atlantic Canada has already cooled without prompting a price correction – supporting the view that a bubble never formed in these regions. National perspective shows continued strength

At the national level, Canada’s housing market is delivering a robust performance. Sales of existing homes are on track for another record year and strong demand has created upward pressure on prices. Resale home prices rose 12.9% in the second quarter of 2006 from a year earlier, which is marginally faster than the 12.0% gain posted in the first three months of the year and far exceeds the long-term national average of 5.6%.

The strength in resale markets has fed through to new home activity, with new home prices advancing at an 9.8% annual pace in June. This attests to the strong demand for housing, as inventories of unsold new homes are much lower than a year ago even though housing starts (i.e. new home supply coming to the market) have been at an elevated level for quite some time. Starts have dipped modestly since the start of the year, but the 236,500 units in June remain far above the sustainable 175,000 level that is consistent with current population growth and household formation.

As often happens, the national story is masking major regional developments. Housing in Alberta has soared in the past three months, while activity in Vancouver continues to look excessive. Excluding Alberta and British Columbia, the average rise in resale home prices across the other provinces is a more moderate 7.3%. Alberta is also responsible for almost half of the gain in the national average of new home prices. Moreover, the dominant trends in housing markets outside of the West have been weaker unit sales, greater new listings and more moderate price growth – all of which point to more balanced market conditions and declining real estate risks.

Given that the national averages provide little understanding of the current underlying trends, let us turn our attention to the developments at the major city level, and we will frame the discussion from west to east.

Victoria cools, but remains relatively hot

Demand conditions are clearly softening in Victoria. Unit sales have fallen in five of the last seven months on a year-over-year basis. Reduced foreign interest in Victoria’s real estate market in response to the strong Canadian dollar may have contributed to this trend. At the same time, new listings have been rising rapidly in the last few months. The new home market appears to have stabilized, with relatively flat housing starts from January-July compared with a year ago. The net effect is that the Victoria housing market has become less of a sellers’ market. This has been reflected in resale home prices, which slowed from a 17.5% year-over-year increase in the first quarter of 2006 to 12.7% in the second quarter, before strengthening to 14% in July. This suggests that the degree of speculation in the market is abating. However, with 50% of household income going to home ownership costs (mortgage interest, principal payments, property taxes and utilities), affordability is still a major issue. Price gains need to slow more in the months ahead to create a more sustainable market.

Vancouver still looks frothy

Demand for housing in Vancouver has been softening since the beginning of 2006. In six of the last seven months, unit sales have been virtually flat or negative on a year-over-year basis. This may reflect the fact that the average resale house is now priced at over half a million dollars and home ownership costs have climbed to almost 50% of median household labour income.

Supply conditions have been more mixed. There have been substantially more new listings, with increases in six out of the last seven months on a year-over-year basis. As a result, the sales-to-new listing ratio has declined and now stands at only slightly above the 0.6 mark. This suggests that while it is still a seller’s market, the balance between supply and demand has improved. However, there is still considerable tightness in the new home market. To illustrate, the inventory of unsold new homes stood at just 712 units in June – which is a record low.

There is welcome news that the rate of home price appreciation appears to have plateaued, but it has done so at an extremely elevated pace of around 20% year-over-year. Some of the market’s strength is supported by fundamentals including lower unemployment, rising income, low interest rates and scarcity of land, but the substantial double digit price gains cannot last indefinitely and they will likely be brought back to earth by an increase in supply, particularly on the new home front.

The recent trend towards weaker unit sales and rising listings is a positive development that might augur for a soft-landing if it continues. Close monitoring of this market is clearly called for.

Calgary on fire

Demand for housing has softened a bit in Calgary over the last few months. After a booming start in 2006, unit sales have dropped from a dramatic 49% year-over-year increase in January to a 5.0% decline in July. Although the Calgary housing market is still very tight, it has begun to open up. After declining for most of 2005 and 2006, new listings picked up substantially in June and July, rising 24.7% and 41.2% year-over-year respectively. This is likely a reflection of the dramatic increase in prices that has curtailed sales and boosted listings, but it has not yet tempered the explosive price gains.

As in Vancouver, the very low level of available new housing units is keeping the resale market very hot. There were only roughly 580 unsold new homes available in the April-July period. The last time inventories were this low in Calgary was in 1992. Even more amazing is that the total inventory of unsold new condos and lofts for sale from May to July stood at a mere six units.

This has resulted in a powerful sellers’ market for new homes, and while the resale market has become more balanced it has only done so in the last couple of months.

As a result home price growth has been dramatic. Indeed, resale home prices jumped 25.5% year-over-year in the first quarter and accelerated to a 43.3% in the second quarter.

So, is there a bubble in the Calgary market? It may sound strange with the recent unbelievable price gains, but housing in Calgary remains surprisingly affordable and comparable to other major cities in Canada. Indeed, Calgary housing is still more affordable than Toronto or Montreal. In the second quarter of 2006, home ownership costs were only 24% of median household labour income in Calgary. This reflects the fact that resale home price gains in Calgary in the past have been more subdued than in many other urban centres and household income growth has been exceptionally strong in recent years. Also, much of the strong demand and drain on inventories is likely warranted by the robust population growth in Calgary and the rest of Alberta. In fact, Calgary has now hit the one million person mark and about 3,000 working-age men and women are arriving in the city every month.

Having said that, the speed of the rise in prices is troubling and cannot be sustained. If prices continue to rise at a close to 40% rate, affordability will quickly become a problem and fear of being priced out of the market may encourage hasty decisions. However, if the market becomes more balanced, the rate of price growth will eventually slow (although it will remain elevated for some time as the impact of additional supply will only gradually be felt), and we would argue that a price correction is not warranted. But the market is so overheated at the moment and new home supply so tight that a bubble may be forming, or could easily develop. Based on our bubble watch indicators, Calgary is the second urban centre that merits close attention.

Edmonton also booming, but affordability remains good

Demand for housing in Edmonton is at its strongest in years, with unit sales up about 20% from the year before. Meanwhile, the supply-side of the Edmonton housing market remains very tight and has not kept up with demand. For example, there were more sales than new listings in May. We saw similar conditions in Calgary’s housing market at the end of 2005. In Edmonton this has led to a 2-year low in the inventory of unsold new homes. The tight conditions in the housing market have fuelled a frenzy of housing starts (up 19% year-over-year in the Jan-July period). Meanwhile, the strong demand and tight supply has resulted in resale home prices soaring from 13.9% year-over-year in the first quarter to about 22.9% in the second quarter and reaching 31% in July.

While this explosive price growth is troubling, housing in Edmonton is still quite affordable. Housing-related costs were just 18% of median household labour income in the second quarter of this year. So, the message is the same as for Calgary. Much of the strength is supported by economic fundamentals, but prices cannot go up at this pace indefinitely. If the pace doesn’t soften, a bubble could form. However, greater affordability and the scope for a future increase in supply lowers that risk and could lead to a soft-landing.

Saskatoon delivers strong performance

There hasn’t been much change in the state of the Saskatoon housing market, which continues to deliver a robust performance. Unit sales have remained at roughly the same levels as a year ago and demand for housing has been fairly constant, as the outflow of workers to Alberta has largely been balanced by an influx of people from rural Saskatchewan. Supply has also been largely unchanged. As a result, inventories of unsold new homes and new listings are both around their 2005 levels, but this means the market is still fairly tight and home price growth remains strong, rising by 10.8% year-over-year in the second quarter, which is virtually unchanged from the 10% in the first quarter. However, there is good reason to believe that the market may open up in the months ahead, as housing starts are currently running about 34% higher than a year ago. With houses remaining reasonably affordable, the market should become more balanced and price growth should slow before long.

Winnipeg remains the most affordable

Although the Winnipeg housing market remains solid, demand for housing is likely softening. Population growth in Winnipeg decelerated substantially in 2006 to about 0.5% annualized, which is slower than the 1% observed over the last few years. As a result, the rate of increase in resale home prices slowed from 8.1% in the first quarter to 6.5% in the second quarter from a year ago. There may be some supply-side pressures, as there are still relatively few unsold new homes available, but housing starts are up about 9% year-over-year. With home ownership costs representing only about 14% of household income, Winnipeg remains one of the most affordable cities in the country to own a home.

Greater Toronto has cooled

There is clear evidence that the Greater Toronto housing market has cooled. While demand for housing remains robust in Toronto, unit sales appear to have reached a plateau in the past few months. At the same time, supply has increased slightly. There have been more new listings on the market and the inventory of unsold new homes was slightly higher in the second quarter versus the beginning of the year. Although starts rose in the second quarter, they were down from a year ago. As a result of these various trends, the Greater Toronto housing market has moved into a balanced position favouring neither sellers nor buyers. This has led to a slower pace of home price growth. After rising by 7.4% in 2005, resale prices moderated to a gain of 5.5% year-over-year in the second quarter of 2006 and down to 4.9% in July.

Ottawa price growth slows in reaction to new supply

Over the past few months, unit sales growth have slowed, owing partly to a moderation in employment growth in the public sector. At the same time, new listings have declined, leading to a tightening in supply-demand conditions. In this situation one might expect to see an acceleration in the growth rate of resale home prices, but this hasn’t happened. In fact, resale home price growth has slowed, dropping to an average increase of 2.8% year-over-year in the May-July period. This can be partly explained by an increase in new homes, which has put a damper on prices. There are more unsold new homes than a year ago and housing starts in Jan-July are up by a substantial 21%.

Montreal market has become more balanced

Activity in the Montreal market has lost a bit of stream, but this has not led to significantly slower price growth. The rate of increase in unit sales and new listings have slackened over the past three months, with the ratio between the two statistics moving from 0.63 to 0.46, which is clearly a balanced market. Meanwhile, the number of unsold new homes has climbed significantly, reaching its highest recorded three-month average of 3,946 units in the May-July period. More than 80% of the unsold units have been in condos and lofts. The high inventories of properties available for sale have discouraged new starts, with the latter having fallen since the beginning of this year by 17% on a year-over-year basis. These trends are negative for home price growth, but their constraining influence has not yet been evident. Indeed, average resale prices in July were 8.5% higher than a year earlier. While this is strong, it does not imply that speculation is becoming a problem, and it is likely that the pace of home price growth will moderate in the second half of 2006.

Atlantic Canada cools over course of Q2

Housing market conditions in Atlantic Canada are healthy. In particular, the sales-to-new listings ratios for St. John’s, Saint John, and PEI show relatively balanced markets. Conditions in Halifax are tipped slightly in favour of being a seller’s market, but this is largely because growth in new listings has slowed faster than unit sales, with the direction of both being towards a cooling. However, this assessment is not apparent in the aggregate Atlantic statistics in the bubble watch indicators table on the next page. Just as the national housing data are being distorted by regional trends, so too is the Atlantic aggregation. Resale home prices in Halifax spiked temporarily higher by 48% in April from a year ago, dramatically lifting the price gains in the second quarter, but then price growth slowed in each of the next three months, dropping to a 3.5% pace in July. Similarly, price growth in PEI was extremely strong in the first quarter, but has been slowing steadily since February. As a result, Atlantic Canada is on track for robust price growth in 2006, but the trend is towards more moderate price growth. The tighter market conditions do suggest that Halifax may outperform the regional average in the months ahead, but the assessment is that the risks of a housing bubble remain low.

Article courtesy of TD/Canada Trust

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com

TREB (Toronto Real Estate Board) reports August 2006 was a Strong Stable Month

August Shows Strong, Stable Results

TORONTO - Wednesday, September 6, 2006 -- TREB President Dorothy Mason announced today that the Toronto resale homeowners continued its run of healthy showings in August, with 6,976 homes changing hands through the TorontoMLS system.

"Last month was the second best August ever recorded, off moderately from the record 7,498 figure achieved in 2005. In addition, the year as a whole has seen 59,488 single-family dwelling sales, up marginally from 2005's January to August performance. As people return from their summer holidays, we are looking forward to an even more active autumn market."

Prices remain stable in August, with the Average coming in at $338,192, less than one per cent lower than the July figure of $342,034. This figure is up five per cent over the $323,255 recorded during August of 2005.

Breaking down the total, 2,627 sales were reported in TREB's 28 West districts and averaged $321,415; 1,181 sales were reported in the 14 Central districts and averaged $401,244; 1,493 sales were reported in the 23 North districts and averaged $388,674; and 1,675 sales were reported in TREB's 21 East districts and averaged $275,050.

Toronto's housing market remains steady

TORONTO, September 6, 2006 -- The August performance ever with 6,976 transactions recorded during the month, Toronto Real Estate Board President Dorothy Mason announced today.

The total number of transactions was within seven per cent of the all time record of 7,498 sales set last August. Year-to-date figures show 2006 to be marginally ahead of the record pace for annual sales also set in 2005.

Positive results like these show that the market is in good shape, Mrs. Mason said. Relative to other segments of the economy real estate is very locally driven, and the Toronto Area market has long been supported by strong economic fundamentals.

Consistent activity and steady price gains over an extended period of time have shown that housing demand in the GTA is based on real need, TREB's President added. Slight moderations in sales to more normalized levels help to keep the market from overheating, Ted Tsiakopoulos, Ontario regional economist for CMHC, noted that the good overall health of the market produces a variety of benefits.

While home sales across the GTA have been healthy, listings have also been rising, said Ted Tsiakopoulos, CMHC`s Ontario regional economist. A steady increase in new home listings is a good news story for Toronto's residential real estate market. Rising new listings provide more choice for buyers and ensures discipline among those pricing their homes for sale, added Mr. Tsiakopoulos.

Some of the most active neighbourhoods during the month were located outside the city core. In the East, the Scarborough Town Centre / Woburn area E09 showed a 27 per cent overall increase in transactions compared to last August, led by a jump in condominium sales. West of Toronto, Milton W22 showed an overall increase of 72 per cent compared to August 2005, led by strong sales of detached and semidetached homes.

It's a great time to be in this market whether starting out or making a switch, Mrs. Mason said. There is a lot of choice out there as we gear up for the busy autumn market.

Toronto REALTORS® are passionate about their work. They adhere to a strict code of ethics and share a state-of-the-art Multiple Listing Service designed exclusively for REALTORS®. Serving more than 24,000 Members in the Greater Toronto Area, the Toronto Real Estate Board is Canada's largest real estate board. Greater Toronto Area open house listings are now available on www.TorontoRealEstateBoard.com.

For more information please contact A. Mark Argentino

A. Mark Argentino Associate Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS 905-828-3434
FAX 905-828-2829
E-MAIL mark@mississauga4sale.com
Website: Mississauga4Sale.com