Uneasiness Marks Housing Market Rebound – 2 July, 2009
Data show sales and prices are picking up again, but rising mortgage rates seen dragging on market.
The worst of the country’s housing market woes appear to be past but the sector’s rebound will be tenuous as a rise in mortgage rates and high unemployment limit the recovery in prices and sales.
Property experts say first-time buyers and Bank of Canada rate cuts have helped restore stability to a market that slumped from late 2008 to early this year, when the worst leg of the global financial crisis battered consumer confidence.
”We should be less fearful than we were six months ago, but I don’t think we should be exuberant yet,” said housing market consultant Will Dunning.
Recent data suggests the residential property market, which weathered the financial crisis much better than its hard-hit U.S. counterpart, has been thawing for several months.
The latest Canadian Real Estate Association data shows May resale home prices rose 0.4 percent to $319,757, topping the previous record set a year earlier. It was the first year-over-year increase since May last year. And sales activity climbed for a fourth straight month.
The industry group also cut its forecast for a drop in home prices this year and said it expected sales activity to trend higher.
Still, no one predicts the residential property market is headed back to the heady times seen between 2002 and 2007, when prices surged and outpaced income growth.
A ”stable but unremarkable” period for the real estate market is expected this year, said Philip Soper, CEO of Brookfield Real Estate Services.
”Stability is something you can’t overemphasize in terms of its importance for the housing market right now.”
But the economy is still on shaky ground, contracting for the ninth straight month in April. And the jobless rate spiked to an 11-year high in May, boosted by layoffs in Ontario’s manufacturing sector. Experts warn that further job losses could slow the sector’s momentum.
”We don’t expect the recession to end until the fall. It’s clear the spring fling in housing markets has been driven by record low mortgage rates,” said Sal Guatieri, senior economist at BMO Capital Markets.
These record low rates had increased affordability, but weakness in the bond market has pushed mortgage rates higher.
The posted rate on a five-year mortgage at Royal Bank of Canada has risen to 5.85 percent from 5.25 percent in April.
Source: Toronto Star