Market slow down or stabilization?

Hello,

I hope you are enjoying your summer and have taken time for vacation and relaxation.


Let me ask you this. Is the market slowing down? Or is it just stabilizing? 2007 was a record year for home sales in Canada with 520,192 sales through MLS. We really can’t get spoiled and expect it to always be increasing at the same rate. So what is expected for 2008? The expected number of sales through MLS for 2008 is 476,000 units representing a decrease of 8.5% from 2007. In 2009, that number is expected to drop another 2.3% to 465,000 units.

The fact is, the economic fundamentals in Canada remain strong. We have a very high employment rate, rising incomes as a whole, and low mortgage rates. This represents a strong foundation for a solid housing market. Now, this is expected to trend downwards slightly over the next year and a half, but it is no where near as bad as some people make it out to be.

Overall, the market is still relatively healthy. The average price of resale homes grew by 11% in 2007 and is expected to grow another 5.5% in 2008 and 3.3% in 2009, keeping the average MLS sale above the inflation rate. While the growth is slowing as the market stabilizes, it is important to keep in mind that it is STILL GROWING and DEMAND IS STILL STRONG by historical standards. Mortgage interest rates are expected to stay low through the end of 2009 with possible increase of only 25 to 50 basis points (1/4 to 1/2%) by the end of next year.

The reasons for the stabilization are of course, tied to the US market, as well as increasing carrying costs due to home inflation. I am not going to say that the market or economy isn’t slowing. It is. It is unrealistic to think that it will always stay at the same pace.

Our economic growth is expected to slow to 1.8% in 2008, pick up to 2.3% in 2009 and by 2010 we are expected to be at 3.3%. Income levels are still increasing nicely, migration is still very strong and overall consumer confidence is still high as a whole, all fueling a strong market.


Source for the above numbers: CMHC and Bank of Canada.

On another note, The Bank of Canada had their rate meetings today and there has been no change to the prime rate. Their next meeting is September 3rd. Today’s low 5 year fixed rate remains at 5.45% and the variable at 4.15% (with teaser variable rates available as low as 2.24%).


Please let me know if I may be able to help you with anything to do with real estate,
Mark

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