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Fewer Sales, Higher Prices a Quandary for Canadian Real Estate Market

Fewer Sales, Higher Prices a Quandary for Canadian Real Estate Market

By Don Curren

In the classic Warner Bros.’ Coyote-Road Runner cartoons, the scruffy Wile E. Coyote often runs off a cliff in pursuit of his prey and remains briefly suspended mid-air as he realizes his predicament.

The Canadian real estate market might just be having its Wile E. Coyote moment as national sales start to ebb, but prices continue to rise.

The average price of a home in Canada rose between 1.8% and 4.8% on a year-over-year basis in the third quarter, depending on the type of home, according to data released Wednesday by real estate firm Royal LePage.

The price for an average standard two-story home climbed 4% in the quarter from a year ago, to about 404 thousand Canadian dollars (US$409,000), while standard condominium prices rose 1.8% to C$244,000.

Bloomberg News

Most Canadian cities recorded modest price appreciation in the quarter, but fewer homes were sold compared to the same period in 2011, Royal Lepage says.

Nationally, home sales were positive in July, but fell 9% year-over-year in August, it says.  The real estate firm expects September will also show a decline.

Indeed, Vancouver resales plunged 33% in September, according to data from local realtors, with sales of detached homes down 38%. Prices in the big Western Canadian market – where a detached home averaged C$936,000 –  fell by just 0.8%.

And that’s where the disconnect — and the vertigo — come in for the market as a whole.

Prices won’t be able to levitate, as it were, without support from healthy demand and a sales-to-inventory ratio that favors sellers. As listings swell relative to sales, prices will have to come down.

“[Prices in Vancouver] can only head lower in the face of a dozen active listings for every sale, and as buyers seek revenge after a decade-long boom that took average prices up 140%,” says a report from BMO Capital Markets.

Royal Lepage says ebbing demand is partly cyclical and partly in response to a tightening of mortgage rules that went into effect in July. The rules were aimed at guiding Canada’s then high-flying housing sector to a soft landing.

How soft the landing will be, and how sharply prices will fall, is impossible to predict. How it plays out in Canada’s widely diverse local real estate markets is also unknown.