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Shallow slide for GTA

Prices and sales are still active, but are expected to slow--gradually

Helen Morris, National Post 
Published: Saturday, May 01, 2010

If you have found yourself caught up in a bidding war for the one home you simply must have, you do not need Bank of Canada governor Mark Carney telling you the property market is buoyant. All the signs, literally and figuratively, have been in front of you for a few months now.

This week's Teranet-National Bank House Price Index reported that home prices in Toronto rose 13.3% in February compared with a year earlier, and are up 16.2% from their low point in April 2009. Month-over-month, the home price index for Toronto edged up 0.4%from January to February.

"There has been a considerable uptake in market activity but also in home prices," says Millan Mulraine, senior strategist at TD Securities. "That is a reflection of what we thought would happen ... as people [tried] to get ahead of the change in [mortgage] rules and the HST."

Speaking to the House of Commons Finance Committee this week, Mr. Carney said he expected a marked slowdown in the housing market as higher interest rates start to bite.

The Toronto market is also expected to see cooling activity and prices. "We think that the moderation will be modest and measured. We don't foresee any sharp downturn in prices or activity," Mr. Mulraine says. "We do think that the pace of growth in home prices will slow down somewhat and probably settle in the sub-double-digits. The market balance will shift now more towards the buyers."

The expectation is that the housing market will become more aligned with the overall economy rather than leaping ahead of the recovery, as has been the case. Mr. Mulraine says there is no expectation of a bubble forming, nor bursting, in the Toronto housing market.

Nationally, according to the Teranet-National Bank National Composite House Price Index, home prices rose 9.9% in February compared to the same month last year. The pace of increase is heating up following 12-month rises of 7.5% in January and 5.2% in December. These increases have to be set off against the low base of the early months of last year when the market was feeling the full force of the recession.

Index report author Marc Pinsonneault, senior economist, economy and strategy group at the National Bank Financial Group, notes that these healthy year-over-year rises will likely continue through the results for April, the anniversary of the index bottom. The composite index is now 11.7% up on that April 2009 low point.

The rise in the Toronto index is boosting the national figures, as is Vancouver, where February prices were 14.1% above their May 2009 low.

Recently, month-over-month numbers have, however, seen a marked deceleration.

"The 0.2% February rise in the composite index was the smallest in the 10 months since it began climbing," notes Mr. Pinsonneault. "In two of the six markets surveyed, prices were down from the month before."

South of the border, the 20-city Composite S&P/Case-Shiller home price index rose 0.6% in February over the same month last year. This is the first positive year-over-year report since late 2006.

However, month-over-month, prices fell 0.1% in February. (Because the index uses a three-month moving average, it shows home-price measurements for December, January and February -- three of the weakest months for home sales since home prices hit bottom one year ago.)

"The homebuyer tax credit boosted home sales and steadied prices last year, but recent weakness in demand has prices looking iffy again. Case-Shiller home prices have fallen the past five months to February, with the declines accelerating each month and spreading to 19 of 20 cities," notes Sal Guatieri at BMO Capital Markets. "While prices likely steadied in March/April in response to a pickup in sales ahead of the tax credit's expiry on Friday, this is one trend that is clearly no one's friend."

There is little talk of crisis in the U.S. market.

"We continue to be concerned about the prospects for the U.S. housing market for the remainder of the year," notes Ian Pollick, portfolio strategist at TD Securities. "We do not expect a relapse in overall housing market activity."

Posted on Monday, May 3, 2010 at 01:15PM by Registered CommenterElaine in , | CommentsPost a Comment | References1 Reference

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