Shuswap Salmon Arm area "ditto": Market is becoming more balanced generally

Canadian home sales continued their torrid pace in 2006, finishing the year just short of a record, the Canadian Real Estate Association (CREA) said yesterday, though it added that the market is showing signs of easing.

"The market is becoming more balanced generally, and with a more balanced market comes smaller price increases," said CREA chief economist Gregory Klump. "Buyers are in less of a hurry, with more product to choose from."

Ottawa-based CREA said sales of existing homes in Canada's major markets last year totalled 336,271. That's just 242 units short of the high set in 2005. Several cities across the country set new sales records, including Calgary, Edmonton, Winnipeg, Ottawa, Montreal and Quebec City.
But price increases finally started to taper off in the fourth quarter. The average price on CREA's listing service rose 9.2% over the fourth quarter of 2005. That's the first increase of less than 10% in 12 months. The average price of a home in Canada was $294,270 in 2006.

Benjamin Tal, an economist at CIBC World Markets, said the peak of the market is "absolutely over." He thinks home sales will fall about 5% in 2007. "A 5% drop is still a very, very strong number. It's simply falling from an unbelievably unsustainable number," he said.

Phil Soper, president and chief executive of Royal Le Page Real Estate Services Ltd., said the market eased in 2006, as he expected, "if you take out Alberta."

"Cycles in our industry tend to be three or four years in length. This one has lasted seven years. We were well overdue for a slowing in the rate of appreciation," he said.

Alberta is the exception, as increases in sales activity and price increases continue to trend well above the rest of the country. In Calgary, there was a big spike in sales activity near the end of the year, even though oil prices were dropping fast at the same time. The average price of a Calgary home was $361,611 in December.

In a statement yesterday, CREA warned that price increases in Calgary could heat up again if sales activity gains further momentum. But Mr. Soper said 2007 is the year that Calgary should finally cool.

"What will provide relief won't be a significant increase in the supply of homes, but rather this massive reset in the average overall price that has simply taken many people out of the market," he said. "Those crazy price increases we saw in the middle of 2006 were clearly unsustainable and I don't think anyone will see those again for some time."

Mr. Tal agreed that the Calgary market should level off next year, and added that it may even decline.

"In Alberta, you don't have the supply constraints of places like Manhattan and Vancouver," he said. "Vancouver prices are in the sky because there's no way you can build there. Calgary has a lot of room to expand."

(prepared by Peter Koven/Financial Post)