Housing prices post year's first drop

First-time buyers disappeared from the usual bustling spring real estate market and homeowners opted to stay put rather than risk losing money on a sale, pushing down house prices in June for the first time this year.

The housing resale market has been a bright spot in Canada’s economic recovery, with prices increasing sharply from the lows of 2008. If the market doesn’t pick up, sales will have peaked in December, 2009, when low interest rates caused buyers to compete fiercely for available homes.

May and June are traditionally the busiest months of the year for the industry, but this year agents have found business markedly slower because the majority of buyers had already settled into new homes.

There were plenty of reasons to get in early this year: mortgage rates were forecast to move higher, the government in April made it more difficult to qualify for a mortgage and there was a rush to beat the new harmonized sales taxes on purchases in Ontario and British Columbia.

The rash of activity encouraged homeowners to sell through the first half of the year, because prices were moving sharply higher. Now, the large number of listings on the market and fewer buyers are moving prices lower. The national average resale price slipped 1.2 per cent in June to $342,662, from May’s record setting $346,881, the Canadian Real Association said. It marked the first month-over-month decline this year.

"People have realized we’re in a softer market and they are sitting tight," said Diane Scott, president of the Calgary Real Estate Board. "It’s been very quiet in June because the spring market started early.

"We expect the same for July and August."

Sales across the country were down 8 per cent in June, and down 25 per cent from December’s peak. Industry insiders – including the Canadian Real Estate Association – have warned for months that prices were likely to soften in the second half of the year and fall next year.

While the number of sales fell, there were also more houses on the market in June, with the national inventory at 6.9 months on a seasonally adjusted basis – a measure of how long it would take to sell all available homes at the current pace of sales. It’s the highest level since March, 2009.

Many of these houses have been on the market for several months because their owners aren’t willing to lower their expectations, said Cary Chapnick, the president of Hive Realty Corp. in Toronto. He has clients who are ready to buy, but aren’t willing to pay the same amount as others paid earlier this year.

"There’s a lot of stale inventory because sellers won’t lower their prices," he said. "Buyers aren’t willing to engage in cutesy games any more. They know what they want to pay, and they aren’t going to start bidding things up."

Most analysts expect prices to soften further and continue declining next year, though forecasts vary. CIBC World Markets has suggested prices could fall as much as 10 per cent in the next two years. TD Bank suggested last month prices could fall 2.7 per cent in 2011, and CREA said 1.5 per cent.

Gluskin Sheff Associates Inc. economist David Rosenberg, who has suggested houses were overvalued by up to 20 per cent through the market’s rebound, said June’s numbers are a sign the market has begun to sharply correct.

"Remember – excesses in one direction are generally followed by excesses in the other direction," he wrote in a note to clients. "And bubbles never correct by going sideways. In a nutshell, there’s more air to come out of this Canadian housing balloon."

(prepared by Steve Ladurantaye/Globe & Mail)