Housing prices, sales in decline

Thursday, June 3rd, 2010

CREA points to interest-rate hike, new mortgage rules for expected drop


Weaker-than-expected sales in B.C. have helped convince the Canadian Real Estate Association to lower its forecast for housing sales this year.

The Ottawa-based group — representing 100 real-estate boards across the country — says 2010 Canadian sales will not be as strong as previously forecast and that by next year prices will begin falling.

CREA expects 490,600 sales this year, a 5.5-per-cent jump from 2009 and the second-best year on record. By 2011, however, sales are expected to fall by 8.5 per cent.

A decline in housing affordability affected first-quarter sales in B.C., CREA said Wednesday.

“The revision reflects a weaker-than-expected start to the year in British Columbia, and recent developments that pulled forward the timing as to when sales are expected to ease in other provinces,” the association said.

A major factor pushing people into the market earlier has been new mortgage rules that took effect April 19.

Canadians buying homes with mortgage-default insurance must now qualify based on what is called the benchmark rate for a five-year fixed-rate closed mortgage, even if they opt for terms of under five years.

The impact has been that borderline borrowers get less cash for their homes because they must qualify based on a rate that is six per cent today. Consumers going for terms five years or longer can qualify based on the rate on their contract, which is as low as 4.25 per cent for a five-year mortgage based on discounting.

The rules have forced many consumers out of variable-rate mortgages tied to the prime rate.

“The changes prompted some homebuyers to finance their home purchase before the new regulations took effect in April, which pulled forward a number of sales that would have otherwise taken place at a later date,” said CREA.

With the Bank of Canada on Tuesday finally increasing its overnight-lending rate, which prime tracks, that too is expected to have an impact on home sales in the coming months.

CREA now says the market peaked in the fourth quarter of 2009 and predicts that by next year the average price of a home sold through the MLS will be $318,300, a 2.2-percent decline from 2010.

This year’s average price is now expected to be only 1.6 per cent higher than 2009.

Average price increases were previously forecast to rise 5.4 per cent in 2009, but the lower sales activity in B.C., which includes the country’s most expensive market in Vancouver, drove down the national numbers.

Only B.C. and Ontario are not expected to post price gains in 2011.

In B.C., prices should rise 2.3 per cent this year and fall by 3.5 per cent in 2011. Ontario will see prices climb 3.9 per cent in 2010 and fall 3.3 per cent in 2011.

Overall sales in B.C. are expected to fall 5.9 per cent this year and 10.6 per cent next.

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