Canadian Housing

Depending on your location, home sales experienced a rise or a fall in August. Within the US, California saw an all-time low while British Columbia, Canada, had a temporary increase in home sales. California experienced a drop in many areas of real estate.

California, US – Fall in Home Sales

Home sales in California fell 2.7% from July. That drop in one month seems small compared to other statistics. Home sales fell 20% from June-July 2010 and 14% from August 2009. As well, the median price ($260,000) of California homes dropped 3% in August from July.

San Francisco Bay Area

Within the San Francisco Bay area, the median home price was $385,000. This figure is a 4.2% drop from the median price in July ($402,000). Home sales fell 1.1% in August from July and 10.9% from August 2009. 6,698 homes were sold last month compared to 7,518 homes in the previous August. This drop puts home sales in the Bay area at their lowest point for the month in eighteen years.

Some potential buyers are waiting for prices to fall further and other people are just waiting to be in a position to buy a home. Despite falling prices and low mortgage rates, joblessness is one factor that is having a huge effect on home sales. As well, first-time home buyers no longer have the Home Buyers' Tax Credit to ease the burden.

Foreclosures

While everything else was falling during August in California, foreclosures increased over July's rate. Foreclosures rose from 35.9% to 35.2%. In the San Francisco Bay area, foreclosures accounted for 26.7% of resales in August compared to 25.3% in July. Foreclosures are, however, down from last year during August – down 42.8% on average in California and 24.8% in the San Francisco Bay area.

Home sales in California fall a second straight month

British Columbia, Canada – Rise in Home Sales

Home sales rose (4.1%) in Canada during August compared to the previous month's purchases. July records indicated that it took 7.3 months to sell a home in Canada. August records point to a 6.9 month wait. Yet experts in Canadian real estate do not expect a continued rise throughout the rest of the year.

"Rising interest rates and a projected slowdown in job growth mean that the Canadian housing market is expected to continue to cool," said Georges Pahud, president of CREA.

Although August statistics might be better, sales in July were not high despite the fact that June saw considerable sales. Most buyers in June, however, were trying to purchase before the new HST (Harmonized Sales Tax) regulations came into effect in July.

August sales are probably a throwback to the incredible rate of sales in 2009. During that year, home sales rose by 66% and prices increased by almost 22%. It is hard for any system to maintain that level of activity so things have leveled off somewhat in 2010.

"I don't see the continuation of a dizzying descent in sales activity," says REA chief economist Gregory Klump.

Some changes in Canadian real estate are just marginal improvements. The average price of a Canadian home during August was $324,928. In 2009, the price came in at $324, 843. Demand has increased (1.9%) since last summer but dropped 16% from the peak in April. The Canadian Real Estate Assocaition (CREA) expects home prices to fall but not at any substantial rate.

Home sales rebound, but it won't last long, analyst says

Are Home Sales Rising Or Falling In Your Area?

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"A 15 per cent to 40 per cent crash in prices, depending on the market -- with Vancouver and the Lower Mainland most at risk - is now a certainty," Turner told ctvbc.ca."

Conflicting reports came out recently about the Canadian housing market. Is a real estate bubble about to burst or is there even a bubble in the first place? The answer varies depending on the source. The Canadian Centre for Policy Alternatives (CCPA) believes in the bubble but the University of B.C. business professor, Tsur Somerville, who specializes in real estate, does not agree with that theory.

"I would have thought maybe two and a half years ago this was more of the story," says Somerville.

Somerville suggests that the bubble scenario was more suited to two years ago at a peak in pricing. Actually, Somerville is not alone in his opinion. Cameron Muir, chief economist for the B.C. Real Estate Association, also questions the CCPA report. All major Canadian centres (Vancouver, Toronto, Calgary, Edmonton, Montreal, and Ottawa) are quoted in the report. Vancouver is said to be headed for the worst situation with an expected loss of $200,000.

The numbers in the report (15%-40% crash in prices) are making real estate experts take notice and offer some opposition to the CCPA conclusions. Of course, booms are generally followed by busts and house prices have been high in Canadian cities. The report referred to the model of the 2006 US housing crisis. Yet experts who oppose the CCPA report point out the differences between the Canadian and US real estate markets.

It does not necessarily follow that Canadian real estate will experience the same crisis as its American counterpart. Some experts do not envision the meltdown predicted in the recent report. They can accept the possibility of 'levelling out' in the future or 'correction' in the market. Yet an all-out 'crash and burn' is not in the cards for Canadian real estate – at least not according to some knowledgeable experts.

House prices in Canada are, however, way above median incomes. During the last decade, housing prices were three or four times the median income. Yet in 2010, prices are in the range of 4.7-11.3 times the same amount. The CCPA believes that if there is a rise in mortgage rates then affordability will go out the window. The report indicates that Canadian housing has not been such a state in the last 30 years.

It suggests that the most important factor is not whether or not a bubble exists but what will happen next with Canada's housing. The previous strength of this market served as a type of protection for the banks from financial crisis. The strong housing market contributed to the success of Canadian banks when those around them were in turmoil.

The Canadian Centre for Policy Alternatives points to the fact that Canadian households are carrying considerable debt. When home owners are debt-ridden, even the slightest change can cause a calamity. Job losses or higher rates can impact the prices of homes and the borrowers themselves.

Doom and gloom predicted for Vancouver house prices

A housing market that is out of step can affect the whole economy. Yet it would take something drastic to trigger a huge decline such as the CCPA predicted for Vancouver. We need to keep our eye on this one!

Do You Think The Bubble Is About To Burst In Canadian Housing?

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