CREA News

The number of properties sold via the MLS® systems of real estate boards in Canada posted a second consecutive steep decline in November 2008, according to statistics released by The Canadian Real Estate Association (CREA).

Seasonally adjusted residential MLS® sales activity numbered 27,743 units in November 2008, the lowest level for monthly activity since January 2001. While not as severe as the decline recorded in October, this is still down 12.3 per cent on a month-over-month basis. Seasonally adjusted activity was down from levels recorded in October in 85 per cent of Canadian housing markets.

However, year-over-year declines in the MLS® average home price were reported in fewer than half of all markets. Lower activity and the decline in average prices in Canada’s priciest housing markets continue weighing on the overall national MLS® residential average price.

The national average price of homes sold via the MLS® in November 2008 declined by 9.8 per cent from where it stood a year ago. The national decline reflects further declines in both activity and price in British Columbia, Alberta and Ontario.

The price trend is similar but less dramatic for the weighted national MLS® average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national MLS® average price dropped by 4.7 per cent year-over-year in November.

The MLS® price trend in Canada’s major markets was similar to the national trend. The major market average home price declined by 9.9 per cent in November from a year ago. Year-over-year declines in average prices were limited to a handful of higher-priced major markets (Greater Vancouver, Victoria, Calgary, Edmonton, Oshawa and Toronto). The weighted major market average price declined by a more modest 3.0 per cent year-over-year in November.

“The housing market reflects the economic reality in Canada,” says CREA President Calvin Lindberg. Based on research done for CREA that measures economic benefits of MLS® sales, the decline in housing activity for the year to date translates into $2.8 billion less in spin-off consumer spending.

“But we should not lose sight of the fact the World Economic Forum labeled Canadian Banks as the soundest banks in the world, and remember that Canada is the only country of the G8 not running a deficit,” the CREA President added.

Seasonally adjusted dollar volume for MLS® sales totaled $7.9 billion in November 2008, down 11.7 per cent from the previous month and the lowest level since January 2004. British Columbia, Alberta, Ontario and Quebec account for more than 90 per cent of the monthly decline in dollar volume.

Seasonally adjusted dollar volumes for MLS® home sales in major markets declined by 10 per cent in November from the previous month. Some 95 per cent of the monthly decline in major market dollar volume was due to weaker volumes in markets located in the four provinces accounting for the bulk of the monthly national decline in dollar volume.

“These changes in the Canadian housing market reflect a broader and weakened picture of both the economy and buyer sentiment,” said CREA Chief Economist Gregory Klump. “National sales activity and price trends will continue reflecting increased cautiousness on the part of lenders and buyers, as the economy works its way through and out of the current recession.”

The Bank of Canada lowered its benchmark overnight lending rate by three quarters of a percentage point to 1.5 per cent at its setting on December 9th. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, declined to 1.75 per cent.

The Bank declared that Canada was joining a global economic recession, which it said: “will be broader and deeper than previously expected.“ The global credit crunch is dragging down global economic growth, and the Bank expects “it will take some time before conditions in financial markets normalize.”

The Bank is much more downbeat now than it was in October 2008, when it last decided to lower interest rates. Its October announcement said: ”the global economy appears to be heading into a mild recession, led by a U.S. economy already in recession.”

The Bank has repeatedly lowered its policy interest rate to support economic growth throughout the year, including October’s half percentage point cut as part of coordinated interest rate cuts with other central banks. Since December 2007, the Bank has cut its overnight lending rate by a total of three per cent.

“Canada is in better shape to weather the global economic recession than many other countries,” said CREA Chief Economist Gregory Klump. “Lower interest rates and a lower Canadian dollar will support economic growth, as will expected government spending.”

The Bank acknowledged that households have become cautious, and that the global and domestic economic recession and credit crunch “imply a lower profile for core inflation than had been projected at the time of the last Monetary Policy Report in October.”

The Bank targets the core rate of inflation at two per cent. The rate has stayed below the target level since October 2007.

Telegraphing the potential for additional cuts when it next meets in January to set its policy interest rates, the Bank also said it “will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the two per cent inflation target over the medium term.”

When the Bank cut interest rates on December 9th, the advertised five-year conventional mortgage rate stood at 6.95 per cent. This is down 0.44 per cent from one year earlier, and a quarter of a percentage point below where it stood when the Bank made its previous interest rate announcement on October 21st.

The ongoing credit crunch has led mortgage lenders to reduce discounts on advertised mortgage interest rates, and in some cases these have been completely eliminated.

“Sales activity remains on a downward trajectory, with buyers taking more time to shop,” said Klump. “Unsold listings are being, and will continue to be, taken off the market, which will limit price declines.” [CREA 09/12/2008]