Housing sales tumble across Canada

The biggest housing boom in more than 50 years appears to be out of steam as sales tumbled in all major cities this winter and listings surged in Western Canada.

Sales of existing homes cooled in almost all major markets - including Toronto, Calgary and Vancouver - in the first quarter of 2008, according to figures released yesterday by the Canadian Real Estate Association.

At the same time, a glut of sellers entered the markets in the West, sending new listings to their highest level on record.

The first-quarter data prompted one prominent Bay Street economist to declare the end of the most robust housing cycle of the postwar era.

"Canada's six-year housing market boom is officially over. Aside from a few choice prairie locales, sales are melting faster than this year's snowpack," Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said in a research note.

In the first three months of the year, 75,467 resale units changed hands, a 13-per-cent drop from the first quarter of 2007, according to CREA.

Sales fell 18.7 per cent in March from a year earlier, the largest year-to-year decline in unadjusted home sales since January, 1998, when activity dropped 28 per cent from the year before. These figures have not been seasonally adjusted.

In contrast to the weakening sales, new listings soared to a record 154,217 units in the January-March period.

Nasty winter weather in cities, including the country's largest resale home market, Toronto, almost certainly hurt sales in the first three months, Mr. Porter said in an interview. However double-digit declines in "more markets than you can shake a stick at" suggest a trend with deeper roots, he said.

What will go down as a "housing boom for the history books" actually started nearly 10 years ago, according to a recent presentation by Adrienne Warren, senior economist at the Bank of Nova Scotia.

It's a cycle that has blasted past expectations in both its length and scope, leaving almost no Canadian market untouched and fuelled by everything from soaring demand in Vancouver to Newfoundland's offshore oil sector.

Underpinned by strong economic conditions, including historically low unemployment and interest rates, average inflation-adjusted home prices have soared by 65 per cent in the period from 1998 to 2007. This easily tops the 32- to 56-per-cent appreciation of the past three housing booms of the 1960s, 1970s and 1980s, each of which lasted for five or six years.

On a seasonally adjusted basis, existing home sales in Canada's major markets in the first quarter of 2008 declined by 7.1 per cent, compared with the previous quarter, and by 10.6 per cent from the same period the previous year, to 81,747 units. In March, 2008, seasonally adjusted sales rose by 0.9 per cent month-over-month from a three-year low in February and fell by 12.1 per cent from March, 2007, to 26,799 units.

The current slowdown would probably have started 12 months earlier were it not for a wave of buyers entering the market by way of longer amortization mortgages that became available in 2007, said Craig Alexander, deputy chief economist at Toronto-Dominion Bank.

Bad weather and weakness in Toronto have made him cautious about how much weight to put on the first-quarter numbers, Mr. Alexander said. "Having said that, I think it's inevitable to say the housing market cannot continue to deliver the strength that we've had since 2002," he added.

Despite the softening market, home prices have continued to rise, although at a slower pace. The average price of a Canadian resale home rose by 5.5 per cent year-over-year in the first quarter to $327,620, the smallest increase since the fourth quarter of 2001 and half as big as last year's 11-per-cent rise.

Like many other industry watchers, both Mr. Porter and Mr. Alexander are still expecting moderate home-price gains this year. An environment of low, and falling, interest rates is the major difference between the Canadian economy now compared with past cycles in which residential real estate prices have dropped, Mr. Alexander said.

TD Bank expects the Bank of Canada to cut its key rate by 1.5 percentage points over its next three meetings. Lower short-term rates, combined with low unemployment and rising personal incomes, should reduce the risk of a boom-bust housing cycle this time around, he said.

"There's a window of opportunity for the market to cool down and affordability to improve before the next rate tightening cycle, and if that happens ... we shouldn't see a pullback in home prices," Mr. Alexander said.

(prepared by Lori McLeod/Globe & Mail)