With the recent mortgage rule changes announced by the Federal Government last month many economists expected that this would be the last arrow fired to finally slow down the Canadian housing market. Along with a slower than expected economic recovery and increasing mortgage rates, some experts believed that the mortgage rule changes coming into effect on March 18 would result in up to 20K fewer house sales in 2011.

Source: CREA

The Canadian Real Estate Association (CREA) released an updated 2011 home sales forecast yesterday that pointed out maybe things won’t be so bad. They said that consumers understand mortgage rates are at once in a lifetime levels, but they are planning ahead for higher rates and not buying more than they can afford. So the dynamics in the market are different but buyers are still moving ahead. The report outlined that home sales in the second half of 2010 bounced back faster than expected. Now for 2011 they expect hosing sales to reach 439K units (-1.6% year/year) and 453K units in 2012 (+3%), which is about the 10 year average. The revised forecast for this year was due to an improved economic outlook and expected higher consumer confidence.

Due to the mortgage rule changes next month, CREA expects some home buying activity to be moved up into Q1 2011, especially in the higher price markets such as Toronto and Vancouver. Q2 2011 will see a dip and then rebound in the second half of the year.

CREA’s forecast for the national average home price is $343,300 (+1.3%) in 2011 and $347,900 (+1.3%) 2012.

Here is CREA’s forecast city by city:

Source: CREA

Residential housing sales via MLS was over 52K across the country in April 2010 which was up 20% over last April 2009. Seasonally adjusted home sales was down 2.6% from March 2010. With talk of the housing market cooling over the next few months and continuing into 2011 due to higher mortgage rates and the introduction of the HST on July 1, 2010 many homeowners entered the market as sellers trying to see if they get out before buyers dry up. This resulted in 99,901 homes listed for sale in April 2010, with the total supply of residential homes listed on the MLS of 236,397.

House prices are still rising however, as the average house price sold on MLS rose 12.2% in April 2010 over last April and was driven by increases in the major markets of Alberta, Ontario and Quebec.

Source: CREA

Source: CREA

Despite this move by CREA, the Competition Bureau has said the changes are still not enough to open up CREA’s grip on the MLS and still prevents innovative players from entering the market as a simple future vote by members could reverse these changes again. Competition Commissioner Melanie Aitken, said “There is nothing in these proposals that we haven’t seen before and they do not solve the problem. They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”

In addition, agents are now required to pass along a home phone number, if the seller chooses, directly to an interested buyer, so that they can negotiate directly.

The changes should be made soon at each of the local 101 real estate boards, but they must individually approve these changes themselves.

The Competition Bureau believes that the current system keeps prices artificially high, so hopefully future changes will bring down the price of selling your home. If you take a house value of $300,000, a 5% commission charge on that sale, amounts to $15,000 that the seller needs to pay. With the upcoming introduction of the new HST in the summer, any savings in the housing industry would be welcome.

The Competition Bureau announced today that it will challenge rules imposed by the Canadian Real Estate Association (CREA) that “limit consumer choice and prevent innovation in the market for residential real estate services”. The Commissioner of Competition has determined that CREA’s rules restrict the ability of consumers to choose the real estate services they want, forcing them to pay for services they do not need. The rules also prevent real estate agents from offering more innovative service and pricing options to consumers, such as agents simply charging a fee for listing a property on MLS, and the consumer can purchase additional services only if they want to. The Commissioner’s application to the Competition Tribunal seeks to strike down these anti-competitive rules.

Melanie Aitken, Commissioner of Competition said, “Consumers should be able to choose which services they want to buy in order to facilitate that transaction, including lower-cost options. While the Bureau would have preferred to resolve this matter amicably, CREA’s leadership was unwilling to agree to changes that would have opened up competition, and offered options for consumers and real estate agents.”

For example, under CREA’s rules, agents are prohibited from offering consumers the option of simply paying a fee for an agent to list a home on the MLS system. Instead, all consumers looking to list a property on MLS must purchase a pre-determined set of additional services from a real estate agent, such as the presentation of offers and negotiation of a final deal.

These rules have given room for the For Sale by Owner or private sales to grow. These companies mainly offer their services over the internet and charge a seller to list their property for a much reduced cost and they don’t have to pay a commission once they sell their property. The major issue is getting enough eyeballs or buyers to these websites, to generate enough interest for people to sell their homes. That’s the main draw of the MLS system, its popularity, as so many people use it to look for homes for sale, although after today’s announcement it will be interesting to see if that’s still the case in 5 years time.

CREA’s President said “The continuation of unusually low interest rates may keep national sales activity near current levels over the
coming months, as will a blip in housing demand in Ontario and British Columbia from homebuyers motivated to beat the introduction of the HST.”

A few interesting stats from the report:

These price increases and contiuing strong demand are bringing more sellers to the market as new listings on the MLS across the country increased to 33,090 in December 2009 which was the highest on record (+4.8% over Dec 2008).

CREA Chief
Economist Gregory Klump commented:

“CREA’s latest statistics will no doubt spark further bubble talk amongst the usual suspects,” said . “Cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer.”

“By the second half of 2010, price gains are likely to shrink significantly, since a year will have elapsed since the decline and rebound.”

“Further expected increases in supply will also take some steam out of the market. A more balanced market will result in smaller price increases in the second half of the year, but a massive decline in demand similar to what we saw in late 2008 and early 2009 seems as unlikely as a massive spike in supply.

”

Here is the overview from Gregory Klump:

Canadian House Prices:

Canadian Housing Sales

Foreign Markets
It looks like the Canadian real estate market has been fairly resilient when compared to other markets around the world, as reported in the Edmonton Journal:

The MLS ® Major Market Residential Summary:
First Half 2008