Flaherty's calming advice: It's only a loss if you sell?

House values sinking into red
Average national prices decline 3.6 per cent in July sparking fears U.S. housing woes are moving north

August 15, 2008
Tony Wong
BUSINESS REPORTER
Toronto Star

Canadian average home prices have fallen for the second month in a row, raising concern by economists that the housing market may have been caught in the undertow of a U.S.-based slowdown.

Average home prices nationally fell by a significant 3.6 per cent to $327,020, from year ago levels in July, according to figures released by the Canadian Real Estate Association yesterday. In June, prices fell by 0.4 per cent, the first time the market recorded a decrease in nearly a decade.

"We had a small drop the month before, but this looks like the real thing. We hope it's not the beginning of an accelerating trend," said TD Securities economics strategist Millan Mulraine in an interview.

The bulk of the declines were in the western provinces, with cities such as Calgary down by 7.8 per cent and Edmonton by 5.3 per cent. The previously unassailable Vancouver market saw a 1 per cent drop, all helping to bring the national average down.

"Canada's housing market is running into some seriously foul weather amid the weakest affordability in nearly two decades," said BMO Capital Markets senior deputy economist Doug Porter in an economic note. "The steady drum beat of double-digit sales declines this year is beginning to weigh more heavily on prices."

A drop in prices is typically preceded by a fall in sales. In this case, sales volume in cities such as Vancouver were down by a mammoth 44 per cent, and Calgary by 13 per cent.

Sales are also down in the Toronto market, by 12 per cent, for the seventh month in a row. But prices are narrowly hanging on in positive territory, up by 1.5 per cent in July, over the same time last year.

But there's no guarantee that will last.

"The provincial economy isn't exactly holding up too well, so we certainly can't rule out a future price decrease in the Toronto market," said Mulraine. "It's not improbable since the trajectory is downward and the market is definitely past its prime."

One thing Toronto has going is the strength of its financial services sector, which is still doing well, and should help to buffer job losses from manufacturing and other industries, said Mulraine.

Closer to home, the Oakville, Milton and District Real Estate Board reported yesterday that prices in Milton declined by 1 per cent in July to $332,827. This was "most likely due to the moderate economic growth and the increased choice in the resale market," the board said.

Nationally, a combination of mounting new listings and fading sales has pushed the market into buyer's territory in many cities, with "pricing power in full-scale retreat across many major markets," said Porter.

So far, no one is saying the Canadian market is going the way of the U.S. market, where a credit crunch has seen median home prices year over year fall by 14 per cent, and where some hard-hit areas have seen values drop by 50 per cent.

"While we still doubt that Canada will stage an instant replay of the trauma in the U.S. markets, even a mild version would be bad news," Porter said.