Canadian Real Estate Is Still Rising

Real Estate in Canada is still rising, along with the interest rates on mortgages. One would think that with a rising interest rate that new and resale home sales would drop off. This is not the case in Canada where real estate continues to surprise industry insiders with double digit percentage gains. The following article presents the case across Canada. Full Article.

Red-hot real-estate market breaks records in May

Eric Beauchesne
CanWest News Service
Friday, June 15, 2007

OTTAWA - Home sales and prices hit all-time highs last month, flying in the face of repeated predictions of a cooling of Canada's housing boom.

The numbers also add to expectations of stronger overall economic growth and rising interest rates.

The record-shattering surge in activity was not limited to Western Canada: growth was also reported in Ontario, Quebec and Manitoba.

The Canadian Real Estate Association (CREA)released its report as mortgage rates were climbing to their highest level in five years - and as the Bank of Canada was considering raising other borrowing costs to cool what it calls an economy that's operating beyond its non-inflationary capacity.

"Residential sales activity, new listings, average prices and dollar volume in Canada's major markets broke all previous monthly records in May," the industry association said.

Sales reached 42,039, 11.6 per cent higher than a year earlier, and the first time in history they have surpassed the 40,000 mark in a single month, it said.

The increase was led by gains in Montreal and Toronto.

Seasonally adjusted sales were also up 1.3 per cent from April, led by one-month gains in Vancouver, Winnipeg, Ottawa, Montreal, and London and St. Thomas, Ont.

"In a nutshell, the housing market just keeps powering ahead," said BMO Capital Markets economist Douglas Porter.

Only a day earlier, Porter noted, Bank of Canada Governor David Dodge had admitted home prices had stayed stronger for longer than it expected, keeping the open flame on inflation pressures, especially in Western Canada.

Last month's results will not ease the central bank's concerns, he added.

The average selling price of a home was up 10.2 per cent from a year earlier to a new monthly record of $333,524, which was also a marginal acceleration from the 10-per-cent average of the first five months of the year.

"And it is far from just a Prairie brush fire any longer, as fully 11 of the 24 reporting cities posted double-digit increases," Porter said.

Prices hit all-time highs in many of the cities, led by $591,722 in Vancouver, and including Calgary, Edmonton, Regina, Saskatoon, Toronto, Montreal, Quebec City and Halifax.

The steepest price increase was in Edmonton, up 47.3 per cent, followed by Saskatoon, up 44.1 per cent, but with double-digit gains in a string of other cities in Quebec, Ontario, and Manitoba.

The only cities to see prices drop were auto-dependent areas of Windsor and St. Catharines, Ont.

"While the big cities in Central Canada are not piping hot, each of Toronto, Montreal and Ottawa saw hefty gains in sales in the month and are still posting moderate price increases," noted Porter. "That's a lot more than you can say about the vast majority of U.S. cities."

"The pressing issue is whether this long-lasting run of strength can continue, particularly with five-year mortgage rates climbing to their highest level since 2002 in recent days," he said.

"We suspect that, finally, the housing market will begin to lose a touch of steam nationally in the months ahead amid the steady erosion in affordability," he said. "However, with consumer confidence still very strong and income growth solid, we doubt that a major correction lies ahead."

CREA chief economist Gregory Klump agreed, saying it's expected that price increases will slip below 10 per cent this year to an average of 9.7 per cent, and then ease further to 5.5 per cent in 2008.

In the meantime, National Bank of Canada economists said the red-hot home resale market will also bolster the overall economy.

"Strong resale activity is also providing a significant wealth effect to consumers and supports spending," they noted.

The report comes only a day after the industry published a study saying that each home sale boosts consumer spending on average by $32,000, on moving costs, legal fees, commissions, renovations and so on.