Housing boon turning to bust

The Canadian economy has taken a sudden turn for the worse, with the housing boom finally turning to bust as sales of existing homes plunged 14 per cent to a six-year low during October, the steepest monthly drop in 14 years, and prices fell 10 per cent from a year earlier.

The fall in sales from September left them down more than 25 per cent from a year earlier, the Canadian Real Estate Association reported Friday.

In B.C., the year-over-year residential sales dollar volume fell 54 per cent in October. The average house price in the province sank 6.5 per cent to $420,259 from a year earlier, the association said.

The weak housing report was released Friday afternoon as North American stock markets were retreating, and oil prices and the Canadian dollar falling, in the wake of worse-than-expected economic news out the U.S. of a sharp retreat in consumer spending there last month, and overshadowed surprisingly strong economic reports on Canadian factory shipments and auto sales.

"Many homebuyers across Canada battened down the hatches in October as they were concerned with dire headlines about stock market volatility and a global economic downturn," said Gregory Klump, chief economist at the Canadian Real Estate Association.

"The breadth and depth of the drop in . . . activity suggests a major downshift in consumer psychology," he said, adding that has moved many people to the sidelines until the economy starts to improve.

The federal government's tightening up of the mortgage eligibility rules, aimed ironically at avoiding a U.S.-style housing bust, likely also had an impact, he added.

"Elimination of mortgage default insurance availability for purchases with less than a five per cent down payment and for amortizations beyond 35 years also likely played a lesser role in the decline in sales activity," he said.

"These figures on the surface would suggest the bust has begun," said BMO Capital Markets economist Douglas Porter, adding that while the sharp drop may overstate the current weakness in the Canadian housing market, Canadians should expect even further declines in sales and prices in the months and year ahead.

National sales were down 27 per cent from year-ago levels.

Even before the release of the home-sales report, North American stock markets were posting triple-digit retreats after the U.S. reported that retail sales last month fell 2.8 per cent, the steepest drop in 11 years, which followed a 1.3 per cent drop in September.

"The drop was much worse than the 2.1-per-cent decline expected by the markets, and was the fourth consecutive monthly drop in this indicator," said TD Securities analyst Millan Mulraine, noting that sales there were also down 4.1 per cent from a year earlier, the worst performance on records dating back 40 years.

(prepared by Eric Beauchesne/Vancouver Province)