Real estate turnaround after last year's disaster

Transplanted Winnipegger Richard Partridge can't believe he didn't make a deal for a condominium in downtown Toronto last fall, when he had the chance.

Six bidding wars later, all of them lost, the 29-year-old consultant and his partner, Kristin, are trying to figure out what has happened to the housing market since winter.

"What's a property worth these days? I have no idea any more," said Mr. Partridge, who last bid on a two-bedroom condo for $280,000, only to see it end up selling for $350,000.

He is not alone in his confusion. Nobody in the real estate industry, including economists, executives, mortgage brokers and agents, could have predicted the astonishing turnaround in a sector everybody had left for dead just nine months ago.

"The speed with which the market rebounded outstripped all expectations," said Gregory Klump, chief economist with the Canadian Real Estate Association.

The Ottawa-based group, which represents 100 real estate boards across the country, said yesterday sales activity last month set a record for August and, not surprisingly, prices are starting to climb. CREA said the average price across the country, which was declining just a few months back, was up 11.3% from a year ago.

Where do we go next? There is plenty of room for argument.

Last week, Royal LePage chief executive Phil Soper said he believed the real estate market was sustainable. But in a survey of 1,153 of his agents, only 61% concurred with the boss. There is agreement on one thing. Record-low interest rates have become a key driver of the housing market.

Five-year fixed-rate mortgages are still available for about 4%. Banks have eased up on credit and are offering variable-rate mortgages for just above the 2.25% prime rate, which is tied to the Bank of Canada's lending rate.

In October 2008, that same variable-rate product would have been one percentage point above prime, or 3.25%.

"Record-low borrowing costs combined with the growing realization that the economic storm is passing have fuelled the remarkable turnaround," said Doug Porter, deputy chief economist with Bank of Montreal. "One of the reasons the market came flaring back is affordability was so enticing."

"Now that prices have moved up so smartly in such a short period, I have to wonder whether sales won't dip a bit."

Average prices have been helped by thehot Vancouver market just as they were hurt when sales were declining in British Columbia's largest city. Sales in Vancouver -- still the most expensive market in the country with an average sale price of $481,279 -- rose 117% last month from a year ago.

"Vancouver is carrying the country, but the market was so bad a year ago in August," said Don Lawby, chief executive of Century 21 Canada. "It started in June and it just continued through the rest of the year."

While prices have begun to rise, Mr. Lawby says he is not concerned. Any radical upward movement in price, he says, will be met with a pullback in demand because the economy is still not strong enough to support major increases.

One factor behind the price increases is a shortage of homes for sale. Not enough Canadians are putting their homes up for sale to meet the present demand.

CREA said August inventory -- the number of months it takes to sell inventory based on the rate of sales activity -- was five months. It was 4.4 months in July after peaking at 12.8 months in January.

Mortgage broker Vince Gaetano, vice-president of Monster Mortgage, doesn't know what all the excitement is about. "Last year was a disaster, you have to put things in perspective," Mr. Gaetano says about the present state of the market.

It all depends what you compare the current market to.

It looks like 2009 sales will almost match those of 2008, but that was a year that saw a 17.1% decline from 2007.

For the next few months, the market will be compared to sales statistics from a year ago -- a time when the stock market was crashing, people feared job loss and nobody dared buy a home.

The numbers are likely to continue to impress.

("Turnaround after last year's disaster" prepared by Garry Marr/National Post)