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Brisk home sales will likely slow in second half

April 23, 2010
Stephen Dupuis

Is the market half empty or half full?

A little over a month ago, I wrote that I wasn't necessarily buying into the conventional wisdom that the housing market would be slower in the second half of the year. I'm not necessarily retracting that view, but I must say that at the time I wrote that column, I also wasn't thinking that the first half of the year would be as strong as it is turning out to be.

According to RealNet Canada Inc., there were 4,444 new homes and condos sold in the GTA in March. I won't bother quoting exaggerated comparisons with 2009, but the fact that sales were up 43 per cent compared with March, 2008, is noteworthy. Truth be told, March new home sales were the highest since 2005 which came in at 4,564 sales.

The big difference between 2005 and 2010 is that four out of every 10 sales then were highrise while today that number is 5.1 high-rise units out of 10, or 51 per cent of the market (56 per cent in March). On that note, March, 2010, was the third-best month ever for highrise sales (the best months ever were June and July, 2007).

I had been expecting some pretty good results for March, based on the reports from builders who opened new projects during the month, so the official RealNet figures might have been anti-climactic if not for the fact that they were even better than expected.

For the record, I am getting the same feedback from builders as far as April sales are concerned, so I expect to tell you a similar story when the official numbers come out in mid-May.

As to the explanation for all this new home buying activity, it seems that purchasers are all trying to beat something, be it the new federal mortgage insurance rules which took effect earlier this week, recent and potential interest rate increases, or the HST which kicks in on July 1, 2010.

Clearly, the first half of the year is living up to, if not exceeding the predictions. Looking ahead, it's possible that some of the current demand is being borrowed from future sales, in which case, the second half of the year would be that much slower.

The other factor that has been boosting the new home market is the relative lack of listings on the resale market. Many buyers who didn't have the stomach for bidding wars were looking at alternatives in the new home market, where the price is the price. As of this month, there has been a dramatic increase in resale listings suggesting that the re-balancing is underway.

If it sounds like I'm back-pedaling a bit on my earlier assertion, and I'm sure it does, I would not want to leave you with the impression that I believe the second half of this year will be dramatically slower, but I feel safe in saying that the current pace probably represents the peak of activity for the year.

Ultimately, a lot will depend upon how far and fast the Bank of Canada and the banks themselves raise mortgage rates. As I said in my earlier column, even if rates go up a full percentage point or even two points, they are rising from 50-year lows.

One thing I do know for sure is that a year ago, governments at all levels wanted jobs and investment. With the help of homebuyers, the housing industry has come through in spades.

Stephen Dupuis is president and CEO of the Building Industry and Land Development Association. The views expressed are those of the president.

Posted on Friday, April 23, 2010 at 06:00PM by Registered CommenterElaine in , | CommentsPost a Comment | References1 Reference

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