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Affordability, lower rates, prices lift home sales

Home Sales
Home Sales

Existing-home sales surged in April, a third consecutive monthly increase, which forced the Canadian Real Estate Association on Thursday to revise its forecast for a housing market apparently on the rebound.

On a seasonally adjusted basis there were 34,838 unit sales last month, an 11.2% increase from March and the largest monthly jump in sales since March, 2004.

“This spring has been strong,” said Gregory Klump, chief economist with the Ottawa-based group, which represents about 100 real estate boards across the country. “Affordability, lower rates and prices, that’s bringing people back to the market.”

Interest rates are at a record low for a five-year, fixed-term mortgage, still the most popular product among homeowners. Some banks are offering rates as low as 3.75%, if the buyer locks in for a full five years. But variable rates, tied to prime, have also continued to drop as the Bank of Canada has lowered rates.

Add in the fact that prices have fallen from the record-setting pace set in 2008 and you have a recipe for getting people out to buy, says the CREA. The average price of a home sold in April was $306,366, a 3.2% decline from a year ago.

Dale Ripplinger, president of CREA, said pricing, better borrowing conditions and improved consumer confidence have all been factors. He added sellers have become realistic in their pricing and that is driving the market. “Homes are only worth what a buyer is willing to pay,” Mr. Ripplinger said.

Because of its renewed confidence in the market, CREA is now forecasting sales will come in at 370,500 for 2009, up from the 360,900 in sales the group was forecasting in February. But even the renewed forecast would be a 14.7% drop in sales from a year ago and a far cry from the record 523,855 in sales in 2007.

There is some good news for consumers who are considering buying now. The association is forecasting that the average price of a home will drop only 5.2% this year from a year ago. In February, CREA had forecast a 6.4% drop in average price.

Not everyone is convinced the housing market in Canada has turned the corner. Pascal Gauthier, an economist with Toronto-Dominion Bank, still contends there is room for prices to drop.

“The next few quarters of data will be crucial in determining if a trough has indeed formed or if this was just a respite with another leg down ahead,” said Mr. Gauthier, who has forecast national prices could fall as much as 20%. “So far, the first few months of 2009 lend credence to the view that improved affordability is winning out against the weak economic backdrop of a recession … but we are still in the early rounds of a bout that has yet to fully play out.”

Economist Marc Pinsonnealt, of National Bank Financial, noted last month’s jump in sales comes at the same time that new listings are dropping. “These opposite movements were such that the disequilibrium that arose last October when existing-home sales plunged has now vanished,” he said.

Realtors say sales over the past three months are further prove the Canadian housing market is not heading toward a U.S.-style correction. “There has been a fall in Canada but it’s been pretty mild. The indication out there is that [the decline] is not going to be as severe as originally thought,” said Sherry Chris, chief executive of Better Homes and Gardens Real Estate, which plans to launch its brand in Canada this year.

Don Lawby, chief executive of Century 21 Canada, said he is seeing an increase in activity in the lower end of the market, triggered by first-time buyers and people returning to home ownership.

“You are seeing [the average price] drop because it’s the low end of the market that is selling, not the high end,” Mr. Lawby said.

Gary Marr, Financial Post

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