TORONTO, May 5 /CNW/ - Canada's housing market is showing signs of
emerging from its winter hibernation, according to the latest Real Estate
Trends report released today by Scotia Economics. Nationally, home sales
strengthened in both February and March, and preliminary reports suggest this
firming trend continued in April.
    The Real Estate Trends report notes that the rise in demand, combined
with fewer new listings, has restored a better balance to the market. The
national new-listings-to-sales ratio averaged 2.2 in March, down from a cycle
peak of 2.7 last November (about 2.0 is considered balanced). Average home
prices steadied in February and March, though were still down almost eight per
cent year-over-year, or five per cent on a regional sales-weighted basis.
    "These 'green shoots' are encouraging," said Adrienne Warren, Senior
Economist and Real Estate Market Specialist, Scotia Economics. "On an
annualized basis, average home prices in early 2009 are running about six per
cent below last year's levels, while sales volumes are down 16 per cent. This
is tracking a slightly better performance than our forecast for a 10 per cent
decline in average prices this year, and at the low end of our forecast for a
15 per cent to 20 per cent drop in sales.
    "Nonetheless, we still feel there is more downside than upside risk to
home sales and prices," added Ms. Warren. "The significant deterioration in
domestic labour markets in recent months suggests little prospect for a major
resurgence in demand near-term. Meanwhile, a still high level of active
listings relative to underlying demand will continue to pressure prices."
    The report states that in contrast to the pickup in home sales,
residential construction is being reined in even faster than anticipated, with
builders quick to respond to falling new home prices, rising inventories and
greater resale competition. Housing starts slumped to a decade-low of only
139,000 annualized units in Q1. Residential permit demand has slipped even
further to around the 125,000 unit mark.
    "While exacting a heavy toll on domestic demand and employment, the
correction is nonetheless a necessary cyclical adjustment to an extended
period of overbuilding," said Ms. Warren. "We now expect Canadian housing
starts to total only 140,000 units this year, down from our February forecast
of 155,000. The longer-term sustainable rate of housing starts, taking into
account population growth and depreciating stock, is around 175,000 units
annually."

    Canada's condo market correction
    The many construction cranes still dotting the skylines of Canada's major
urban centres are raising concern over a pending oversupply of high-rise
units. The supply of new condo units coming onto the market is now outpacing
demand, pointing to some degree of overbuilding, and consequent downward
pressure on prices, in the year ahead. However, the risk of developing a
late-1980s-type glut, and an ensuing broad reversal in prices, still appears
low.
    The report highlights a number of factors that should help to contain
unsold condominium inventory, including sharply lower multi-unit starts,
falling permit demand, tighter financing requirements for developers, low
rental vacancy rates and improving first-time buyer interest.
    "In addition, we expect an increasing number of pre-construction project
cancellations. A large share of unsold units are in pre-construction stage.
Many of these projects will likely not go ahead, failing to achieve a
sufficiently high level of sales to obtain financing. To the extent that any
existing projects are cancelled, this in turn will create a pool of displaced
buyers re-entering the market."
    The report also shows that shifting demographics and demand preferences
suggest the market can sustain a higher level of condominium housing stock
than in the past. Multi-unit dwellings accounted for a record 24 per cent of
Canada's owner-occupied housing in 2006, up from 20 per cent in 2001 and just
16 per cent in 1991. Between 2001 and 2006, the number of homeowners living in
single-detached homes rose just six per cent, while the number of homeowners
choosing apartment-style living shot up 35 per cent.
    The aggregate picture masks significant regional differences. Multi-unit
housing is primary an urban phenomenon, as roughly three-quarters of Canada's
apartment starts in recent years have been in the nation's six largest
metropolitan areas: Toronto, Montreal, Vancouver, Ottawa, Calgary and
Edmonton. Vancouver takes top spot for high-density living, with fully 50 per
cent of homeowners opting for multi-units, double the national average.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.