Worst of housing downturn behind us: National Bank

Thursday, August 27th, 2009

Derrick Penner, John Morrissy

Metro Vancouver saw house prices tick higher in June after 11 straight months of decline on one bank’s index measure of property values.

With three other major cities on the index measure also showing price recovery, the National Bank of Canada is suggesting “[the] worst of home price deflation in Canada is therefore behind us,” according to a note from bank economist Marc Pinsonneault.

In June, Vancouver home prices rose 1.6 per cent from May based on the Teranet-National Bank house price index.

However, Vancouver prices were still down almost 11 per cent from their peak on the index in August 2008.

Nationally, Pinsonneault said real estate sales versus new listings slipped into seller’s market territory, and remained there in July.

“This is an environment conducive to continued improvement in home prices on a monthly basis,” he said, concluding that the worst of the housing downturn could be over.

The Teranet-National Bank index is based on repeat or paired sales of homes, so it captures direct examples of changes in value, rather than only the average value of all homes that sell in a given month.

National Bank spokesman Simon Cote said that in June the number of Metro Vancouver’s paired sales exceeded the number in the same month in the previous year for the first time since May of 2008.

Cote said that suggests a recovery in sales as well as prices. “This is very positive,” he said. “It is a result of the more relaxed monetary policy [which brings] more people to the market.”

Adrienne Warren, senior economist with Scotia Economics, concurred, saying, “Metro Vancouver is experiencing the same trend of firming sales and prices.

“Demand is benefiting from a little bit more optimism in the economy, and certainly low interest rates,” Warren said.

She noted that those low rates are the biggest factor in the 25-per-cent decline in average monthly mortgage payments since the late 2007 peak.

She added that if there is any concern it is over whether or not the buyers of today face substantially higher interest rates when they go to renew their mortgages.

Rates are expected to stay low for the next couple of years, Warren said, but “if [buyers] were to see increases in interest rates, they would be more vulnerable to increases in their monthly payments.”

Housing-market indicators in the United States are also turning more positive relative to bone-jarring declines that marked the subprime meltdown and drove housing prices 31 per cent below their peak in 2006, TD Bank chief economist Don Drummond said.

On Tuesday, the S&P/Case-Shiller composite index showed home prices in the U.S. bouncing higher for the second straight month.

And on Wednesday, the U.S. Commerce Department announced new-homes sales surpassed expectations by increasing 9.6 per cent to 433,000 units in July, the biggest increase in more than four years and the highest level of activity in 10 months.

Though residential real estate accounts for only five per cent of each country’s economies, Drummond said rising home prices boost household wealth and spending power, and carry a psychological boost to recession-weary consumers beyond their numbers.

Renewed strength in the Canadian market was evident in four of six major markets tracked by the Teranet-National Bank survey.

Montreal posted its fourth straight monthly increase, up 1.2 per cent; Ottawa gained 2.1 per cent; and Toronto recorded its second straight month of gains, up 2.3 per cent.

Halifax and Calgary were the only laggards, each slipping 0.2 per cent. For Calgary, it was the 12th consecutive losing month.

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