The supply side of the housing market is waking up to the reality of cooling demand, with resale listings easing and new home construction expected to fall by 16 per cent next year.
A glut of homes hit the market earlier this year as sellers tried to cash in at the tail end of the housing boom, at the same time sales were in decline.
Listings soared to a record level in the second quarter of 2008. And housing starts, which measure the number of new residential units entering construction each month, continued to outpace anticipated demand from buyers.
Now things appear to be changing as building intentions and home listings begin to cool.
On the positive side, this indicates Canada is responding much more quickly than the U.S. did to weaker conditions in the housing market, said Millan Mulraine, economist at TD Securities Inc. The bad news is that it signals a slowdown in economic growth and consumer confidence, he added.
“When you build a new house, that factors into growth almost immediately, and to some extent this means we're not going to have the boost we've had in the past from housing construction,” he said.
“In terms of the moderation in listings, you can read it both ways. It's positive to the extent there will not be this proliferation of signs all over the place and further downward pressure on prices. On the flip side, there's a confidence issue when people are fearful of the market and are holding off on purchases and not listing their homes as planned.”
Housing starts are expected to fall by 16 per cent year-over-year to 177,975 in 2009, the first time in eight years they would be below the 200,000 mark, according to a report yesterday from the Canada Mortgage and Housing Corp (CMHC).
Declines are expected in the construction of both single and multiple-family units across all provinces, the CMHC said.
This lower construction activity will come as existing home sales fall to an anticipated 452,225 units this year, and 433,375 next year. In 2007 a record 523,701 housing units were sold in Canada, according to the CMHC report.
In the resale market, the gap between sales and listings growth is narrowing as sellers wait out the downturn, and in some cities, buyers appear to be re-entering the market.
In September unit sales growth was higher than new listings growth on the Multiple Listing Service (MLS) in Alberta, Quebec and Newfoundland, according to a report yesterday from the Canadian Real Estate Association (CREA).
While listings are still far outpacing growth in a number of other provinces, activity in September marks a departure from what occurred for most of the first nine months of the year. During that period listings growth outpaced existing home sales, in some cases by more than 30 per cent, in every province except Newfoundland, the CREA report showed.
Oversupply, combined with a lack of affordability, has been driving prices lower in cities including Calgary and Edmonton. As the overall housing market continues to weaken, the gap between sales and listings growth in Alberta weakened last month.
In September, existing home sales in the province rose by 19 per cent year-over-year, while new listings fell by 11 per cent and prices by 5 per cent.
The average price of a resale home across the country fell by 5.4 per cent year-over-year last month to $289,916. That figure includes smaller markets, and compares with the 6.2 per cent drop for the country's 25 major city markets reported earlier this month. It was the fourth consecutive month of year-over-year price declines.
Much of the drop last month was due to falling sales activity and weaker prices in Vancouver, the country's most expensive housing market.
While some provinces seem to be getting more balanced, new listings continue to remain well ahead of sales in many others.
The gap was most dramatic in British Columbia and Saskatchewan. In September sales fell by 34 per cent year-over-year in British Columbia, while new listings rose by 20 per cent. In the same period in Saskatchewan, sales fell by 5 per cent while new listings surged by 55 per cent.
Prices followed a different trend, falling by 7 per cent in British Columbia, and rising by 23 per cent in Saskatchewan.