Immigrants driving real estate market

 At least two of Canada's big banks have found encouraging signs in the country's housing market, one financial and the other social. A commentary from TD Economics on Thursday said there are encouraging signs that a bottom may be forming under the Canada's depressed home building market, citing an 8% increase in housing starts in June on top of a 10.8% increase in May.

Although homebuilding activity overall remains one-third below the pace of a year ago, the report by TD economist Pascal Gauthier noted that the June climb "marks the second consecutive monthly increase in starts after a long string of nearly uninterrupted slides that started last fall."

On a regional basis, June's urban starts increase was lead by a 59.4 per cent surge in the Prairie region, followed by a 25 per cent gain in B.C., and a more modest 3.1 per cent increase in Ontario.

On the flipside, urban starts slid by 6.3 per cent in Quebec and 3.9 per cent in the Atlantic region. However, the bank said regions east of Ontario have generally not seen the same extent of decline as elsewhere.

Overall, the figures "provide more evidence that the Canadian economy has certainly passed the worst of what can be expected in terms of residential investment contraction," TD said.

Meanwhile, Scotia Economics issued a report Thursday saying it has been recent immigrants who have been driving housing demand in Canada.

The report cited census data that showed 72 per cent of immigrants lived in a dwelling owned by a household member in 2006, up from 68 per cent in 2001.

By comparison, the percentage of people born in Canada living in a dwelling owned by a household member rose only two percentage points over the same period, from 73 to 75 per cent.

Because the analysis was based on 2006 data, it was unclear what effect the current recession might be having on the number of immigrants and others entering the housing market.

But it was clear from the report that Scotiabank expects that trend in real estate to continue.

"Given Canada's aging population and relatively low fertility rates, longer-term household formation and housing needs will be largely determined by immigration," said senior economist Adrienne Warren.

Based on standard assumptions regarding immigration, fertility and mortality rates, Warren said immigration could account for 75 per cent of the growth in Canada's population a decade from now, up from 60-65 per cent today, and for almost all of it by 2030. Most of this growth will be in Canada's urban areas.

Among other things, the report highlighted that the faster transition to home ownership among immigrants was supported in part by strong labour markets, which saw the employment rate for core working-age recent immigrants jump 3½ percentage points between 2001 and 2006 to 67 per cent.

This was faster than the 1½ percentage point gain among their Canadian-born counterparts, which rose to 82.4 per cent.

"The better labour market performance of recent immigrants may reflect a favourable skills mix, with many employed in high-growth industries such as engineering, construction and skilled trades," Warren said.

"It may also reflect a greater geographic mobility to meet shifting regional labour requirements," she added.

Of the more than one million immigrants that came to Canada between 2001 and 2006, 69 per cent settled in the three largest metropolitan areas, Toronto, Montreal and Vancouver, according to the data cited by Scotiabank.

Stable Real Estate Market Forecast

Housing market sees bounce back from 'awful winter' —
Royal LePage revises forecast to the positive.

anada’s resale housing market recovered lost ground in the second quarter and is poised to stabilize for the remainder of 2009, after a very slow start to the year, according to the Royal LePage Market Survey Forecast and House Price Survey released today. As the economy begins to stabilize and consumer confidence improves, house prices are expected to appreciate slightly in much of eastern and central Canada. Greater than national average price declines are predicted for the western cities that saw the greatest price inflation earlier in the decade, including Edmonton, Calgary and Vancouver.

“Given the grim shape that Canada's real estate market was in this past winter, the turnaround we have witnessed in the second quarter is really quite remarkable. We believe this improvement represents a sustainable change across the country. While seasonally weaker conditions are to be expected in the fall, the plucky Canadian real estate market is stabilizing and a healthy level of activity is forecast for the second half of 2009,” said Phil Soper, president and chief executive officer, Royal LePage Real Estate Services.

During the second quarter, average house prices across most Canadian markets began to appreciate, recovering from the lows experienced during the winter months. Average national prices remain slightly behind those posted during the same period in 2008. Of the housing types surveyed, the price of detached bungalows declined to $327,964 (-3.5 per cent), two storey property prices decreased to $392,378 (-3.7 per cent), and standard condominiums price points fell slightly to $237,112 (-3.8 per cent), year-over-year.

Soper observed, “With our industry’s busiest quarter behind us, we feel comfortable revising our 2009 forecast to the positive. When the anticipated market decline struck last winter, it was with greater speed and intensity than predicted, but the strength of the rebound was equally surprising. If general economic conditions continue to improve, as we expect they will, 2009 will be characterized as a period of moderate housing market correction after several years of above-average price growth.”

The 2009 national average house price is forecast to decline marginally by 2.0 percent, to $297,500 by end of year and unit sales are projected to fall slightly by 1.0 percent to 430,000.

“Improved affordability, driven by flat or lower home prices and inexpensive mortgage financing, has been the principle catalyst in this recovery. Pent up demand is also a factor in the lift we see in the second quarter numbers. For six months straddling the year's beginning, buyers stayed away from the market in an understandable, emotional reaction to very unsettled global economic conditions. Canadians appear to be stepping beyond these fears and are once again moving onto and up the home ownership ladder,” stated Soper.

In early 2009, the precipitous drop in unit sales remains the most dramatic indicator of the recession's impact on Canada's real estate market. With spring, consumers appeared ready to believe the worst was behind them and returned to the market in force, driving increased activity across each housing type. Couple this with historically low interest rates and leveling unemployment, Canada’s residential real estate market got back on track during the quarter.

Undergoing an inevitable cyclical correction, price adjustments can be seen with marked variances across Canada’s provinces. As expected, British Columbia and Alberta posted the most significant price modifications, as home values in those markets retreated in the wake of several mid-decade years of unsustainable price inflation, and have now evolved to a more balanced state. Prices appear to have stabilized and it is expected that these regions will continue to see improvements into 2010. In particular, the impact of lower home prices has improved affordability to the point that people are buying homes again on the West Coast, where sales activity has increased substantially.

Alternatively in Atlantic Canada, homes continue to appreciate due to strong local economies, which have helped to shelter the region somewhat from the turbulence witnessed in other provinces. As well, the region's generally moderate home prices have helped keep demand strong. Newfoundland, in particular, stands out as a region that continues to see significant home price appreciation, as supply cannot keep up with the demand driven by vibrant and growing industries such as those in the province's oil and gas sector.

Meanwhile, home prices in Toronto declined slightly in the second quarter, reflecting the national average trend. In the early spring, it was first-time buyers who triggered the increased activity levels, now those looking to move up are also active in the market. Similar to the situation in other large cities in central Canada, the most desirable neighbourhoods experienced supply shortages, which put upward pressure on prices.

“Looking ahead to the second half of 2009, year-over-year price comparisons will likely appear increasingly more favourable. It is important to remember that the baseline for the latter half of 2008 was unusually low, particularly in the fourth quarter when the full impact of the global financial crisis was felt. Our expectation is that most Canadian regions will experience stable housing prices through into the spring of 2010,” concluded Soper.

Regional Market Summaries

Halifax

In Halifax, a stable economy has contributed to a healthy real estate market where average house prices increased modestly despite a slight dip in sales activity. The market is beginning to pick up following a slow first quarter. Pent up demand will see a return to a more active market in the last half of the 2009 with the anticipation of a slight boost in sales activity and average house prices growing at a leisurely pace.

Montreal

The housing market in Montreal experienced a solid second quarter, with average house prices for most property types expected to increase for the remainder of 2009. Higher inventory levels resulted in balanced market conditions seeing the number of new listings equal to the number of sales. Low interest and unemployment rates will help maintain the strength of the real estate market through to the end of the year.

Ottawa

Ottawa continues to remain a steady market for residential real estate, with sales activity in the second quarter coming out strong from a slow first quarter. Ranked number two among Canada’s large cities for affordable real estate and coupled with low interest rates, all types of buyers were drawn to the market. House prices are expected to remain stable throughout the remainder of year with numbers slightly higher than anticipated.

Toronto

In Toronto, the real estate market witnessed significant second quarter gains. The return of consumer confidence and an upswing in spring market activity brought house prices and unit sales down as buyers emerged to take advantage of affordable properties and low lending rates. As the market begins its transition from a buyer’s market to a balanced market, with indications of a seller’s market arising, it’s anticipated that the market will stabilize by the end of year.

Winnipeg

Winnipeg’s real estate market has remained relatively resilient in the second quarter with average house prices in key housing segments increasing from the first quarter of 2009. Real estate in Winnipeg is modestly priced when compared to other cities in Canada, creating ideal conditions for buyers in the province. Looking ahead, average house prices are anticipated to stabilize for the remainder of the year.

Regina

Regina’s real estate market started on the road to recovery in the second quarter of 2009 and is expected to further improve through the remainder of the year. An increase in unit sales helped diminish the city’s high inventory levels as buyers are beginning to initiate deals. Recovering manufacturing and resource sectors, new construction activity in Regina, and low interest rates have also helped to improve buyer confidence.

Calgary

With the economic downturn and the oil and gas industry struggling, the housing market in Calgary has been on the decline since 2008, after many years of price inflation at the beginning of the decade. Quarter one of 2009 revealed some signs of price increases and stabilization in certain areas in Calgary, but the second quarter reveals fluctuations in the market. These price fluctuations are occurring across Calgary in all housing types with the market forecast predicting price reductions for the remainder of 2009.

Edmonton

Housing market conditions in Edmonton were characterized by lower inventory levels and moderate house price increases. Buyer demand was strong during the second quarter as most buyers felt a sense of urgency to capitalize on the recent market conditions. This has led to a slight tightening in Edmonton’s housing market with appreciation in average house prices expected for the last half of 2009.

Vancouver

Vancouver’s real estate market stabilized in the second quarter of 2009 following a price correction that started last fall moving towards a balance between supply and demand. Properties priced at, or below, market value are generating multiple offers from buyers. Average house prices throughout the last half of the year are expected to inch upwards, but increases will likely be in the low single digits.

Royal LePage’s quarterly House Price Survey shows the annual change of prices for key housing segments in select national markets.

And the survey says ...

Two in Three (65%) Say It’s a Buyer’s Market Right Now

pportunity awaits as two in three (65%) Canadians believe the current real-estate market in Canada is a buyer's market, according to the 16th Annual RBC/Ipsos Reid Housing Poll. Nearly three in ten (27%) say they're 'likely' (9% very/18% somewhat) to purchase a home within the next two years', up 4 points from last year and the largest single-year increase since 2001. But Canadians are split on whether buying conditions will change to be more favourable within the next year, such that it makes more sense to wait until next year (52%) or buy now (48%).

Albertans (35%) are most likely to say they'll buy a home within the next two years, followed by those living in Ontario (30%), British Columbia (26%), Saskatchewan and Manitoba (25%), Atlantic Canada (25%), and Quebec (22%).

British Columbians (78%) are the most likely to believe that it's a buyer's market right now, followed by those living in Ontario (73%), Alberta (72%), Atlantic Canada (58%) and Quebec (52%). Only one in three (34%) in Saskatchewan and Manitoba believe the same.

The increase in home-buying intentions appears to be led by the under 35 segment of the population, as 48% say they're 'likely' (18% very/29% somewhat) to purchase a home in the next two years, up 12 points from last year. Renters also see an opportunity to enter the real-estate market, as four in ten (38%) say they're 'likely' (11% very/26% somewhat) to purchase in the next two years.

Overall, most (83%) Canadians are still convinced that buying a house or condominium is a 'good' (34% very/48% somewhat) investment. While this proportion is down 3 points from last year and 8 points from its high of two years ago, it is still well above its low (72%) of 1999.

Among those individuals who intend to buy a home within the next two years, three in ten (28%) say that favourable housing prices are among their reasons for purchasing. A majority (54%) of Canadians believe that housing prices will continue to drop next year (up from 23% last year), compared to 25% who think they will be higher (down from 56%), or 21% who believe that prices will be the same at this time next year (unchanged).

One in ten (14%) homeowners believe their home has lost value within the last two years, but a majority (54%) of these individuals believe the value of their home will recover within 3-5 years, while others believe it will be a shorter time-frame (30%), longer (11%), or never (6%).

Among those individuals who are not intending to purchase a home within the next two years, most (60%) say they've already got a home, but others cite job anxiety (8%) or general concern for current economic conditions (6%) as the reason they're not likely to purchase a home. Three percent (3%) are waiting for prices to stabilize or decrease further.

These are the findings of a poll conducted on behalf of RBC from January 6 to 9, 2009. This online survey of 2,026 Canadian adults was conducted via the Ipsos I-Say Online Panel, Ipsos Reid's national online panel. The results of these polls are based on a sample where quota sampling and weighting are employed to balance demographics and ensure that the sample's composition reflects that of the actual Canadian population according to Census data.

Quota samples with weighting from the Ipsos online panel provide results that are intended to approximate a probability sample. Statistical margins of error are not applicable to online polls, however, an unweighted probability sample of this size, with a 100% response rate, would have an estimated margin of error of +/- 2.2 percentage points, 19 times out of 20, had the entire adult population of Canada been polled.

Housing starts continue steep decline

cotiabank says Canadian residential activity may further moderate in 2009, with housing starts expected to fall 27 percent, amid a general weakening in the domestic economic conditions. "Housing starts are forecast to fall to around 155,000 units — below longer-term replacement demand — with declines across all provinces and in both multi-family and single-family segments," analyst Adrienne Warren said in a note to clients in Toronto. The analyst also expects average prices to drop further by 10 percent.

Canadian housing starts totaled 211,056 units in 2008, down about 8 percent from an average of almost 230,000 units from 2004 to 2007, Warren said. While home sales and construction in Canada seem sure to fall further in 2009, the outlook for renovations is somewhat mixed, the analyst said.

Ottawa's recently announced renovation tax credit for households has the potential to provide a significant boost to the industry in 2009, Warren said. The measure provides a 15 percent refundable tax credit on eligible renovation expenditures between $1,000 and $10,000, completed prior to February 2010, the analyst said.

Real estate prediction of the year

ormer Liberal and Conservative MP Garth Turner deserves the honour of best real estate prediction of the year for his book Greater Fool: The Troubled History of Real Estate (Key Porter Books, $21.95), which was released last March, less than a month after the Vancouver housing market peaked. Turner, who is also a broadcaster and financial columnist, forecast a big correction in housing markets across the country.

That's exactly what happened.

“Few people in Boston, where home values doubled between 1997 and 2007, would have then expected, without warning, the worst market decline since 1958,” Turner wrote. “I trust nobody in Vancouver, Kelowna, Saskatoon or Toronto expects that either.”

Real estate outlook for 2009

Latest CMHC and CREA Data on Home Starts and Sales

anada Mortgage and Housing Corporation (CMHC) says that housing starts plunged in November to only 172,000 units on a seasonally-adjusted annual basis, versus 212,000 units the month before. According to the Canadian Real Estate Association, the number of existing homes sold in November was the lowest since January 2001 and the national average price of homes sold was off by 10% versus a year ago.

Existing home sales more often than not tie in with new home data, since the former is often a necessary step for someone wanting to move up to the latter. Home buying confidence generally has been sent into a tailspin since the late-September crash in stock markets that weakened individuals’ and families’ financial position.

Interest Rates, Affordability and Other Leading Indicators

Interest rates are not a problem in Canada - the Bank of Canada’s overnight rate is only 1.50% - and mortgages are available for those with reasonable credit ratings. The long-term higher-risk mortgage market has been shut down by the federal government in a delayed response to the problems that have overwhelmed the U.S. housing market.

Affordability is coming back into line as a result of new and existing homes either stabilizing or coming down in price. But the major impediment to a buying commitment is growing worries about employment and incomes. Another factor that will slow starts next year has been the buildup in unsold inventories. While this is apparent in the singles market, it is even more dramatically evident in multiples. Toronto’s condo market, for example, appears to be way overcommitted. Projects are in danger of being cancelled.

Canadian City Forecast

By major city, Toronto will see a marked decline in its new condo market next year. Ottawa will hang in relatively well, since it is the epitome of a government town and employment is relatively assured. Montréal is the major urban centre in a regional economy that is suffering along with the U.S. recession.

Edmonton has recorded a greater than 50% drop in starts in 2008 and should level out next year. Calgary’s new housing market will be held back by an energy sector that is struggling with oil prices at only one-third of their peak value. Vancouver is the major player in a provincial economy that, through its forestry sector, will pick up in activity faster than any other region in Canada, once U.S. housing starts show some signs of life.

RBC real estate market predictions

anadians have watched with amazement for nearly two years now at the collapse of the housing sector in the United States, the United Kingdom and other countries that experienced overvalued housing prices with the sense that markets in this country stand on much more solid ground. After all, the sub-prime business never represented more than a marginal phenomenon here; Canadian households, while carrying heavier debt loads than in the past, were not financially overstretched; Canadian banks emerged islands of stability amid the global financial storm; incomes remained well supported by steady job creation and a strong domestic economy; and the influence of speculation — especially on new construction — was deemed to be subdued.

Then, late in 2007, red-hot Alberta markets began to slide, followed earlier this year by British Columbia’s markets. Most recently, Saskatchewan, last year’s hotspot, and areas in Ontario joined the weakening trend. All of a sudden, Canada no longer appeared immune to a generalized housing downturn. In fact, the souring of economic conditions, eroding consumer confidence and, in some instances, past excesses are creating a downdraft that the majority of Canada’s housing markets will be hard-pressed to resist.

In about two months, market sentiment turned on a dime in the Greater Toronto Area this fall. Until the end of the summer, the feeling was that the GTA was successfully negotiating a landing to a slower, more sustainable pace of activity since home resales had been gracefully trending lower since peaking in the middle of 2007 at never-before-seen levels. However, reports of notable declines in prices and activity in many Toronto communities during September and October suddenly challenged that view. While there is no cause to panic at this stage, the GTA market has undoubtedly entered a phase of consolidation. Earlier tightness has eased and buyers now hold more sway. The area’s economy is facing serious headwinds, which will undermine household confidence. Affordability generally remains an obstacle to would-be buyers, although it has improved modestly in the past few quarters.

Housing Market Outlook for 2009

Threat of global recession hinders home sales in major Canadian housing markets in 2008 & 2009, says Re/Max.

he Re/Max Housing Market Outlook for 2009 examined residential real estate trends in 22 markets across the country and found that average price held up remarkably well in 2008, despite 13 centres reporting double-digit declines in home sales. Solid gains earlier in the year likely served to prop-up housing values at year-end. The prognosis for housing activity in the first six to nine months of 2009 is somewhat static, given continued volatility in financial markets and the threat of recession, but as stability returns to the financial sector, housing is expected to recover.

Nationally, 440,000 homes are expected to change hands in 2008, down 15 per cent from record 2007 levels. Canadian housing values are expected to hover at $300,000, a nominal three per cent decline from last year’s historic peak. By year-end 2009, unit sales should match 2008 levels, while average price is forecast to fall another two per cent to $293,000.

“Housing market performance will clearly be contingent on economic performance at a local, provincial, and national level in 2009,” says Michael Polzler, Executive Vice President and Regional Director, Re/Max Ontario-Atlantic Canada. “Issues affecting the overall economy are impacting housing markets across the country and the situation is not expected to be remedied until consumer confidence is restored. That said, we could see a bounce back as early as spring – if inventory levels remain stable, pent-up demand kicks into gear, and lower interest rates stimulate home-buying activity.”

Major markets are evenly split in terms of housing performance in 2009, with 11 centres forecast to match or exceed 2008 home sales and 11 expected to slide from 2008 levels. The highest percentage increase in unit sales is anticipated in Saskatoon, where the number of homes sold is forecast to climb three per cent in 2009. Housing values are expected to hold the line in 2009, with St. John’s, Montreal, Kingston, London, Winnipeg, Saskatoon, and Regina posting modest gains in average price in 2009.

“Canada’s real estate environment is considerably more complex than it has been in recent years,” says Elton Ash, Regional Executive Vice President, Re/Max of Western Canada. “The landscape is definitely changing -- with most markets shifting into either balanced or buyer’s territory. The shut out is over. Sellers no longer rule the roost. Opportunities exist for purchasers like never before, including lower interest rates, greater inventory levels, the luxury of time to make decisions, and the upper-hand at the negotiating table. Motivated vendors will need to take note of the new mindset and set their prices accordingly.”

Canadian sellers are slowly adjusting to new realities. For most markets, 2008 started in balanced territory and moved into buyer’s market conditions during the latter half of 2008. The year ahead will prove challenging, especially for vendors.

“While the economy will dictate real estate performance next year, it’s important to remember that demand still exists in the marketplace,” says Sylvain Dansereau, Executive Vice President, Re/Max Quebec. “In the midst of stock market turmoil, sold signs continue to appear on lawns across the country. With affordable lending rates and increased selection, first-time and move-up buyers with good credit may choose to play their investment strategy safe and purchase a home. The comfort of a tangible investment like real estate goes a long way in tough times.”

Caution for the real estate market

hile the US real estate market is bottoming out, according to the annual Emerging Trends in Real Estate 2009 report released by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC), Canadian real estate industry players are approaching 2009 with caution, but are somewhat more positive.

"US housing woes haven't extended to Canada, where banks and regulators have managed the excessive mortgage lending practices of our neighbours to the south," says Frank Magliocco a PwC partner and the national leader for the Canadian Real Estate practice. "Property markets, including housing, track at or near equilibrium with high occupancies and controlled development. We always get caught up in US trends, but given our strong fundamentals they shouldn't affect us to the same magnitude."

According to report respondents, they remain positive about sidestepping any serious impacts of a possible US correction. Western provinces showcase the strongest growth trends and lowest vacancies in North America. All property sectors share positive prospects, especially industrial and retail.

Overall, the "Emerging Trends Barometer" highlights that it is a moderately good time to sell followed by a high "fair" rating or holding property. Furthermore, the majority of firms (35.8% very good and 22.4% excellent) remain positive in their prospects for profitability as compared to last years' report (38.5% very good, 23.8% excellent).

The report shows that compared with the US, capital has remained disciplined in Canada with a handful of large institutions and development companies dominating the country's five primary real estate markets: Toronto, Montreal, Vancouver, Calgary, and Edmonton. For 2009, survey respondents anticipate steadying capital volumes, with pension fund investors still eager to increase portfolio holdings.

"Those companies that have cash and established balance sheets are and will continue to do relatively well," says Chris Potter PwC partner and leader of the firm's Canadian Real Estate Tax practice, "Financing will cost more and take longer than expected but they will come out ahead in the end. In fact, Canada ranks third in the world (preceded by Asia Pacific and the Middle East) for a moderate to high increase in the availability of capital for real estate."

In terms of specific sectors, industrial outpaces retail in favoured property categories, but all sectors show strength, including housing. Toronto and Calgary rank as top distribution/warehouse markets. Retail has been on a roll, thanks to the booming economy and the report shows that the home for sale market seems to be holding up but new home development will slow. Respondents see a market crest rather than a slump unless interest rates head north.

Office stock is seeing limited inventories and dated product filled up with tenants. Except for Montreal, where office vacancies approach 9%. Hotels are prospering with the strong economy and investment and development prospects are modestly good, with most respondents rating the sector either a buy or a hold. Rental apartments are doing well in major cities with high immigration flows.

Canadian Markets to Watch

Vancouver is Canada's highest rated city for 2009. The hot-growth energy cities out west - Calgary and Edmonton - also score high ratings for investment prospects, development, and for-sale housing. Toronto, Canada's premier global pathway city, also registers a strong score. Ottawa and Montreal follow, and Halifax in the Eastern Maritime provinces lags.

Calgary is Canada's "resource" capital and people are moving there in droves, although recent reports suggest this may be slowing. Survey respondents expect strong buys in 2009 for almost all sectors. For instance: 53.5% for hotels, 52.7% for industrial, 49.1% for office property, 48.1% for apartment buys and 48.1% for retail.

Edmonton has been experiencing the same Calgary-style growth wave and as long as demand for energy resources stays strong, this market has legs. Prospects for for-sale home-buying are particularly solid with an above average rating.

Respondents to the survey are saying to 'never bet against' Toronto and compared with other national financial centers, "the city is cheap." However, the high loonie has been hurting manufacturing industries, and clouds over the US economy continue to create uncertainty. Three new office towers are under construction, adding 3 million new square feet of office space but high taxes and budget deficits make it hard to do business. Office, industrial, and apartments still rate solid buys.

Montreal still faces concerns about market stability and overall growth prospects. Not particularly dynamic, the local market is tough to break into and the city's skyline has hardly changed in years and most respondents give the market a hold rating in all sectors.

Finally, investment in the Maritimes should generally be approached cautiously. There may be some opportunistic returns for speculative investors who are knowledgeable about the specific centers in this area.

The report notes that best bets for investors for the coming years include a focus on the high-growth energy markets - all property categories, hold coupon-clipper central business district office, develop infill condos near subway stops in Toronto, buy infill sites wherever you can and invest overseas - domestic opportunities are too limited at current prices.

CREA cuts forecast

n August, the Canadian Real Estate Association forecast a 2.6 per cent increase in national housing prices for 2008 and another 2.1 per cent next year. Yesterday, CREA released a new forecast, calling for a 0.6 per cent slide this year and a further 2.1 per cent drop in 2009.

"This is in line with the downward revisions of the Canadian economic and job growth forecasts," CREA chief economist Gregory Klump said yesterday. A bigger-than-expected price depreciation and lower sales in British Columbia are expected to pull down the national average, Klump added.

The downgrade comes on the heels of another revision by Canada Mortgage and Housing Corp. last week.

The federal housing agency said Ontario housing starts were originally forecast to hit 65,000 units next year, but revised that down to 62,000. Existing home sales, forecast to be 178,000 in 2009, were downgraded to 173,000.

"With a weak domestic economy and tighter lending conditions, we expect Canadian housing activity to slow notably further in the future," said Millan Mulraine, an economics strategist with TD Securities.

Meanwhile, in a separate release yesterday, the CMHC said Canadian residential construction declined by 3.1 per cent in October compared with a month earlier.

Starts came in at 211,800 annualized units, greater than the expected 200,000 units, thanks to remaining strength in the condominium sector.

"The strongest level of condominium apartment construction on record has resulted in a substantial jump in total new home construction this year," said Jason Mercer, senior market analyst for the federal housing authority.

This is particularly true in the Toronto area, where year-to-date starts are up by almost a third compared with the same time last year.

Starts are a lagging indicator. Most of the starts today are from sales of condos that occurred a year or two ago, and that trend isn't expected to continue as strongly in the future. "New home and condo sales have slowed in the last couple of months from the record highs of the past couple of years," said Ontario Home Builders' president Frank Giannone. Last week, the Toronto Real Estate Board reported a 35 per cent decline in year-over-year sales in October.

The average price of an existing home in Toronto is now $376,896, down 13 per cent from last October's average of $434,022. The impact was more muted in the 905 suburbs, where the average price of a home is down by 8 per cent to $336,049.