News Details
Canadian sellers find it’s suddenly a ‘buyer’s market’
10/14/08 - TORONTO, Canada – Oct. 13, 2008 – For the first time in more than a decade, Canadian Realtor Graham Reid is telling his clients the house they are about to put on the market may not sell.
It’s a tough piece of advice for sellers to hear considering that a few months ago home sales and prices were at record levels. But the real estate market has changed dramatically in recent months thanks to a housing crisis in the United States triggered by loose lending practices that have led to a global financial crisis.
“A year ago anything would sell and now most agents are realizing, ‘oh my goodness, I have a listing and it’s not going to sell and I’m not going to make any money on it,’“ said Reid.
Reid, who has been a Toronto-area Realtor through a few housing cycles, said now is the worst time in a changing real estate market.
“Right now we are in that state of flux where people are figuring out what this new market means to them. The sellers are still trying to figure it out and realize that what they thought they were going to get, they aren’t going to get, and the buyers are really cocky,” he said. “Once the market has changed, everyone is realistic, including the buyers, sellers and agents.”
Reid said homes are sitting on the market for months, when they used to be snapped up in days. He said dropping prices doesn’t help because many buyers are waiting to see how low the market might go.
Merrill Lynch Canada said recently it believes Canada’s housing slowdown could be as severe as the U.S. meltdown that spawned the current crisis. However, most Canadian economists are more optimistic, believing the market will cool off as they head for a recession, but that there will not be a U.S.-style housing bust.
“I don’t even like the word ‘bust.’ I think it has no application to Canada,” said Scotia Capital’s Derek Holt. “I think a controlled cooling is in the cards.”
People started to wake up to Canada’s changing housing market in June, when the Canadian Real Estate Association reported resale home prices fell for the first time in nine years. The association said the peak was around mid-2007 and its chief economist Gregory Klump said new numbers to be released next week will continue to show the market “is in the middle of a realignment right now.”
CIBC economist Benjamin Tal predicts average home prices across Canada will fall between 5 and 10 percent by mid-2009, and sales will dip about 20 per cent.
That compares to a national average annual price increase of 10 percent for existing homes since 2002, a trend that slowed to about one percent by mid-2008.
“In six short months, the Canadian real estate market was transformed from a confident seller’s market to a more muted balance market. By early next year the Canadian housing market will turn, for the first time since 1995, to a buyer’s market,” Tal said.
TD Bank economist Pascal Gauthier predicts housing starts, another indicator of real estate activity in Canada, will drop by about 15 per cent across the country by the end of the year.
“No province is likely to escape this unwinding in residential activity in the coming quarters,” Gauthier said.
The cooling has been greatest in Western Canada, which was until recently the hottest market with prices climbing by about 50 per cent in recent years.
In Vancouver, buyers are either circling or making low-ball offers and the sellers are unable to achieve prices they did a month ago with many properties now selling below assessed values determined in August 2007, Vancouver Realtor Maggie Chandler said.
“I expect the prices to continue to soften between now and year’s end,” Chandler commented.
Prices in the Vancouver area, considered one of the most expensive places to live in Canada, have dipped nearly 6 percent since May, while sales fell 43 percent in September, compared to the same period last year.
The swing has some developers in the Greater Vancouver area now offering incentives for would-be buyers such as $10,000 decorating allowances and ski passes.
In Calgary, Realtor Thomas Keeper is noticing a hangover from years of speculative buying in his city.
“People literally were buying second and third homes and then their whole intention was to flip it immediately and that’s what’s been driving our prices down,” Keeper said, adding houses that sold for $850,000 at the end of 2006 are now selling for as low as $675,000.
“What happens is, all of a sudden you have a gluttony of homes. You still have people that genuinely want to sell their house and buy something else. But you also have a huge amount of homes on the market that are just trying to get reabsorbed.”
Colin Suttie, an engineer who is in Calgary on a two-year work visa from Australia, said his home has depreciated by about 12 percent in the past year.
“We bought at the worst time. We actually only bought because it was almost impossible to rent anywhere when we arrived in Calgary last year,” he said.
Suttie decided to rent for the remainder of his time in Calgary, even if it meant selling at a loss.
“Our read of the market was that it was going to be even harder to sell next year.”
Copyright © 2008 Canadian Press, Brenda Bouw with files from Lauren Krugel in Calgary.