Posted by: Daryl & Wendy Ashby | August 15, 2010

‘Unusual’ market to affect sales pace

Concerned about mortgage rule changes and rising interest rates, many Canadians decided to buy their homes earlier to save a few bucks — likely causing the national housing market to slow down, says a real estate company.

The resale market will start to slow in the second half of 2010 after six months of strong price appreciation and sales activity, predicts Royal LePage Real Estate Services.

While market fundamentals remain strong across most major centres in Canada, sales activity was overly “front-loaded” in the first half of the year and is expected to cool off for the third and fourth quarters.

Prices are also expected to steady in the second half of the year, says the company in its second-quarter house price survey.

The average price of detached bungalows in Canada from April to June was $331,868, an increase of nine per cent compared to the same period year ago.

The price of standard two-storey homes rose 8.7 per cent to $367,835 from April to June, while standard condos rose 7.3 per cent to $230,014, says the survey.

By the end of 2010, home price appreciation will likely average 6.8 per cent compared to last year, while home sales will increase slightly more than one per cent, says Royal LePage.

“We have seen an unusual pattern of activity in the housing market over the past 12 months, with the market experiencing a surge of activity and price increases that peaked in the fall of 2009 rather than spring,” says Phil Soper, president and CEO of Royal LePage Real Estate Services.

“Early 2010 has followed a more typical seasonal pattern with prices and activity peaking in the second quarter.

“An expected increase in the supply of homes on the market will now bring stabilization in prices and in some cities, we will see both prices and unit sales decline towards the end of the year. This should not be interpreted as a severe correction, but rather a natural reaction to the market having peaked quite early this year.”

The surge of activity in the first and second quarters of 2010 corresponds to a number of significant regulatory and financial industry changes that affected homebuyers during that time.

These include an increase in interest rates in the spring, tightening of mortgage lending rules for first-time homebuyers and investors, and the lead up to the introduction of the harmonized sales tax (HST) in B.C. and Ontario.

“Anecdotal evidence suggests that these factors may have prompted an increase in housing market activity in early 2010, as people sought to get out ahead of the changes,” says Soper.

“Moving into the next six months, key economic indicators such as employment growth will continue to bolster consumer confidence and help to ensure a fundamentally healthy housing market. Home prices will remain flat or decline slightly in most cities,”

One exception will be Alberta — where prices “will be more likely to hold their value or increase in energy-producing economies, such as Alberta,” he says.

A gradual improvement in the local sector could culminate in a sellers’ market in the first quarter of next year.

In its national survey, Royal LePage says Canada’s two biggest markets posted some of the largest increases from April to June compared to the same time last year.

Average prices in Vancouver rose to 19.1 per cent, up from 16.6, while prices in Toronto rose by an average of 11.4 per cent, up from 7.7.

But in recent years, these markets have tended to react much more aggressively to external stimulus and affordability is expected to erode after the sharp price increases from April to June.

As a result, downward pressure on prices is expected for the remainder of the year, says Royal LePage.

Similarly, the country’s sharpest price increases occurred in St. John’s, N. L, with prices up an average of 18.4 to 19.6 per cent.

A strong local economy driven by the oil sector combined with low inventory led to the robust increases, but eroding affordability and interest rates that are expected to rise will likely lead to more moderate price appreciation in the second half of the year

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