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Montreal house prices to rise slightly in 2014 while condo sales dip: forecast

Montreal house prices to rise slightly in 2014 while condo sales dip: forecast

 

Royal LePage prediction assumes no further tightening of federal mortgage regulations

 

MONTREAL — Montreal home prices are projected to rise modestly for single-family houses this year, but decline by up to four per cent for condos because of high supply, real estate services firm Royal LePage said Thursday.

The prediction, made by Royal LePage’s House Price Survey and Market Survey Forecast, is contingent on an improving Quebec economy and no change in the federal government’s existing mortgage sector regulations, which have already been tightened four times by federal Finance Minister Jim Flaherty. Dominic St-Pierre, Royal LePage director for Quebec, echoed recent concerns by PQ Finance Minister Nicolas Marceau over the impact any further tightening of rules on insured mortgages would have on sluggish Montreal housing sales.

“The prospect of Ottawa introducing new rules for the purpose of slowing down the lively Toronto and Vancouver real estate markets could certainly have a bad effect on the Montreal real estate market in 2014,” St-Pierre said in a statement.

December home sales in Canada’s largest city were up almost 14 per cent, while prices were up nearly 9 per cent compared with a year earlier, the Toronto Real Estate Board said Monday.

While Flaherty has not hinted at taking further action, changes like a reduction in the maximum amortization period for government-insured mortgages, impact first-time buyers which are already less present in the Montreal market and are taking longer to make purchases.

“It should be noted that in the third quarter, consumer confidence decreased to the lowest level since the recession of 2008, which can explain this phenomenon in part,” St-Pierre said.

Nationally, the real estate company is bullish on growth this year, with prices to rise a projected 3.7 per cent over 2013, in the absence of “some calamitous event or material increase in mortgage financing costs.” Royal LePage CEO Phil Soper predicted “further upward pressure on home prices” in 2014, after seeing the housing market tradition to “buoyant sales volumes” and above-average growth during the last three months of 2013. This was largely driven by double digit sales increases, on an annual basis, in Toronto and Vancouver.

“Talk of a ‘soft landing’ for Canada’s real estate market in the new year is misguided,” continued Soper.

“We expect no landing, no slowdown, and no correction in the near-term. Conditions are ripe for as strong a market as we saw in the post-recessionary rebound of the last decade.”

Montreal, however, did not follow this trend, with a short-lived rebound in sales during the start of the fall, but fizzling out by the last quarter of 2013. Sales of Montreal area properties declined between three per cent for condos and 10 per cent for bungalows, even as housing inventory continued to rise between October and December — an indication that owners would rather hold on to their properties, rather than lower their prices.

“Following a recovery in the real estate sector in the third quarter, we saw that the resale market in Montreal ran out of steam at the end of the year,” St-Pierre said. “Sellers continued to maintain their prices even though properties were more difficult to sell. This combination has contributed to the increase in inventory and the decrease in sales in the Montreal region.”

Average prices for single-family homes in Montreal rose by 2.9 per cent for one-storey houses to $291,050 and by 5.8 per cent to $401,714 for two-storey houses during the last quarter of 2013, on an annual basis. The price of a condo, however, decreased by 0.4 per cent to $239,332 during the last three months of 2013.

“The increase in property prices, particularly two-storey homes, is difficult to explain,” he said. “It may be nothing more than the sellers’ resolve to maintain their prices, which has contributed to the drop in sales. This increase is thus not sustainable and we should plan for a slight correction in the next quarter.”

Rising inventory in Montreal contributed to a 24 per cent decline last year in total new home construction to 15,692 units, the lowest level since 2001, Canada Mortgage and Housing Corp. said Thursday in a separate news release. Condo starts dropped 26 per cent to 8,805 units.

“These results show that builders have adjusted to the softer resale market conditions and the large number of new units available on the market,” said David L’Heureux, senior market analyst for the Montreal area.

Nationally, Canadian housing starts also cooled in 2013, to 188,200 units — the lowest level since 2009 — with BMO economist Robert Kavcic projecting further declines in new home construction to levels in line with demographic demand.

December starts dropped 4.1 per cent because of declines in urban areas, both in the construction of single family homes and condos.

“Interestingly, multiple starts now seem to be struggling as well despite still-solid permit applications,” wrote National Bank economist Krishen Rangasamy in a note. “Perhaps developers are taking a breather in light of the reported accumulating inventories of unsold condos.”

 

Source: The Montreal Gazette