Home sales post surprise gain

Posted November 2007
Information provided by The Globe & Mail

After three successive months of declines, sales of existing homes in Canada unexpectedly reversed course in October, gaining 1.3% from the previous month.

The gain is most likely an aberration rather than a sustainable trend, however, and sales are expected to decline gradually for the rest of this year and continue in 2008, said Gregory Klump, chief economist at the Canadian Real Estate Association (CREA).

"The rebound was particularly surprising because it was spread right across the country in a number of major markets," Mr. Klump said. "However, we are still expecting that sales will gradually erode, primarily due to a decrease in affordability."

Sales of resale homes rose to 28,966 units in October, a 7.6% increase from the same month last year, according to statistics from CREA. Activity rose in Toronto, Edmonton, Hamilton-Burlington, Montreal, Quebec City and Winnipeg. Stronger sales in these markets offset declines in Calgary, Vancouver, Saskatoon and Sudbury - cities that have experienced huge home price increases in the past year.

The average price of a resale home in Canada rose 10.6% to $333,544 in October from last year, the sixth consecutive month in which the increase has exceeded 10%. In Toronto, Regina, Saskatoon and Montreal, average prices reached their highest levels on record.

Mr. Klump said that sales activity in most major centres has been strong at the high end of the market, probably because there's a dwindling supply of lower-priced homes left in many cities.

Listings of residential properties on the Multiple Listing Service decreased slightly in October from September, but they still reached their fifth-highest monthly level on record. "Negotiations still favour the seller in nearly all major markets," states Mr. Klump.

Sales levels are expected to edge down as higher home prices and rising mortgage rates continue to squeeze buyers out of the market. The posted rate on a 5-year mortgage at the big banks is currently sitting at 7.44% — 1.5 percentage points higher than where it was in April.

According to Mr. Klump, even though sales activity is expected to slow next year, it should still be a strong year. "This will be a gradual slowdown, but it doesn't portend disaster," he said. "Next year is still expected to be one of the best years on record, second only to 2007."