Vancouver real estate slowdown helps sink national housing sales forecast

VANCOUVER – The slowdown in Vancouver’s real estate market is one factor leading the Canadian Real Estate Association to cut its sales forecast for this year and next on Monday.

Vancouver’s sales numbers dropped 27.6 per cent – the second biggest drop in the country behind Halifax – in November 2012, compared to the same month last year, after tighter lending rules that came into force this summer. The average price is down 6.3 per cent for the same period to $682,215, while the MLS home price index is down 1.7 per cent from a year ago. The average price reflects the mix of sales, while the HPI reflects price changes for typical homes.

While BMO deputy chief economist Doug Porter said most cities across Canada would see a soft landing for their real estate markets, he called Vancouver a “rather obvious exception.”

“I don’t know that I’d call it a hard landing in Vancouver, but it’s definitely a bumpier landing than most cities in Canada are going through right now,” Porter said.

Meanwhile, it appears people thinking of selling their homes may be holding off, especially in Metro Vancouver, as the region saw the largest drop in the country for new listings.

New supply reached its lowest level in more than two years, CREA said.

“That may help avert a harder landing for prices because sellers do have the leeway to back off,” Porter said. “Fundamentally, I think that’s one of the reasons why the Canadian housing market is likely not going to have a hard landing because you’re not going to have a lot of motivated sellers – people aren’t going to be forced into it by rising interest rates or declining employment so they can take their time and wait for the market to stabilize.”

Nationally, the number of newly listed homes fell 0.9 per cent month-over-month in November.

CREA now expects home sales across the country this year to slip 0.5 per cent compared with 2011 to about 456,300. That compared with a forecast in September that called for sales this year to rise 1.9 per cent to 466,900 units.

CREA also said it now expects sales next year to drop two per cent to 447,400 compared with earlier expectations for a drop of 1.9 per cent to 457,800 in 2013. In British Columbia, the forecast calls for a drop of 0.3 per cent for both the number of sales and the average price.

“Annual sales in 2012 reflect a stronger profile before recent mortgage rule changes followed by weaker activity following their implementation,” said Gregory Klump, CREA’s chief economist.

“By contrast, forecast sales in 2013 reflect an improvement from levels this summer in the immediate wake of mortgage rule changes. Even so, sales in most provinces next year are expected to remain down from levels posted before the most recent changes to mortgage regulations.”

Finance Minister Jim Flaherty moved in July to tighten mortgage rules for the fourth time in as many years in order to discourage Canadians from taking on too much debt. Among the changes, Flaherty made mortgage payments more expensive by dropping the maximum amortization period to 25 years.

CREA said the national average price for 2012 is expected to be $363,900, up 0.3 per cent compared with a September forecast of $365,000, up 0.6 per cent.

For 2013, CREA said it expects national prices to gain 0.3 per cent to an average $365,100. That compared with earlier expectations of a drop of one tenth of one per cent to $364,500 in 2013.

The downgrade for the outlook for the year came as home sales edged down 1.7 per cent month over month in November and were back where they stood in August. The decrease followed a drop of about one-tenth of a per cent in September.

However, economist David Madani of Capital Economics said the belief that the Canadian market was enjoying a “soft landing” because prices have not fallen sharply was misplaced.

“The continued decline in existing home sales support our view that a potentially severe housing correction is underway,” Madani said.

“Assuming that sales continue to trend lower heading into next year, then sharper demand and supply imbalances will eventually lead to widespread home price declines. We still think that house prices will decline by 25 per cent over the next year or two.”

Actual, or non-seasonally adjusted sales, were down 11.9 per cent from November 2011 while the national average home price in November was $356,687, off 0.8 per cent from November 2011.

Sales were down on a year-over-year basis in three of every four local markets in November, including most large urban centres. Calgary stood out as an exception, with sales up 10.6 per cent from a year ago.

Toronto, Montreal and Vancouver contributed most to the small decline at the national level.

A total of 432,861 homes have traded hands over the MLS system so far this year, down 0.2 per cent from levels reported over the first 11 months of 2011 and 0.8 per cent below the 10-year average for the period.

The MLS Home Price Index, which is not affected changes in the mix of sales, showed prices up 3.5 per cent nationally on a year-over-year basis in November.

However, it was the seventh consecutive month in which the year-over-year gain shrank and marked the slowest rate of increase since May 2011.

The MLS HPI rose fastest in Regina, up 11.6 per cent year over year in November, though down from 13 per cent in October.

Among other markets, the HPI was up 4.6 per cent year over year in Toronto, 1.9 per cent in Montreal and 7.1 per cent in Calgary.