GTA Commercial Real Estate Blog

but it's not a bubble economists say

Canada's housing market is on the rebound after a decline in 2009 with resales expected to set a new annual record this year and home building is off to a strong start, according to two reports Monday. There in't a bubble because of a lack of speculation in the real estate market, said Scotiabank senior economist Adrienne Warren.

Prices are being driven by more buyers than sellers, not unexpected with a tight supply, and buyers may be overpaying a little in some markets, she said. "We don't think there's a bubble," she said from Toronto.

The Canadian Real Estate Association is forecasting resales for homes will set a record in 2010, largely driven by activity in the first six months of this year.

The resale housing market is expected to reach 527,300 units this year, up 13.3 per cent from 2009. This would be a new annual record, up 1.2 per cent above the previous peak in 2007, CREA said Monday.

"You are not hearing about a lot of speculative buying," Greg Klump, the national real estate organization's chief economist, said from Ottawa. "Nor is there a lot of speculative building."

Low interest rates and buyers wishing to avoid the harmonized sales tax before it comes into effect in Ontario and British Columbia will help fuel resales in the first half of this year, he said. In the second half of 2010, sales are expected to be lower as interest rates are expected to increase marginally, Klump said.

New housing starts have also gone up, according to figures Monday by Canada Mortgage and Housing Corp. The seasonally adjusted annual rate of housing starts reached 186,300 in January, up 5.8 per cent from 176,100 in December. CMHC reported actual housing starts for 2009 totalled 149,081 units, with activity improving as the year progressed.

TD Bank economist Pascal Gauthier said there's talk of a bubble because of how strong housing markets have rebounded after the economic downturn. "Our expectation is that it will not be sustained. The market will cool off. You could only really have a bubble if that was to continue," Gauthier said. Gauthier said he expects housing starts to cool off by mid-year.

The CMHC said urban starts increased 4.4 per cent to 165,200 in January. Urban multiple starts rose 5.7 per cent to 76,300, while single urban starts increased 3.3 per cent to 88,900.

The improving market comes as the federal Competition Bureau said Monday it's challenging rules imposed by the Canadian Real Estate Association, a body that represents nearly 100,000 real-estate brokers, agents and salespeople.

The federal agency says the CREA rules limit choices for consumers and force them to pay for services they don't want, also stifling innovation in the market for residential real estate services.

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Federal watchdog challenges real estate MLS rules.

The Canadian Competition Bureau says it’s challenging rules imposed by the Canadian Real Estate Association, a body that represents more than 98,000 real-estate brokers, agents and salespeople. The federal agency says the CREA rules limit choices for consumers and force them to pay for services they don’t want, also stifling innovation in the market for residential real estate services.

CREA represents more than 98,000 real-estate brokers, agents and salespeople operating through more than 100 local boards and associations.

The Competition Bureau is challenging CREA rules imposed on agents who list properties on the association’s Multiple Listing Service, also known as MLS.

The agency says most real estate transactions in Canada make use of the MLS system, which includes information available only to CREA members.

But under CREA rules, according to the Competition Bureau, agents are forbidden from offering consumers the option of simply paying a fee to list a home on MLS.

Competition Bureau Seeks to Prohibit Anti-competitive Real Estate Rules

OTTAWA, February 8, 2010 — 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. The Commissioner’s application to the Competition Tribunal seeks to strike down these anti-competitive rules.

“Selling a home is one of the largest financial transactions that most Canadians make in their lifetime,” said Melanie Aitken, Commissioner of Competition. “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.”

The Bureau’s challenge is against rules imposed by CREA on agents who list properties on the Multiple Listing Service (MLS) system. The overwhelming majority of real estate transactions in Canada make use of the MLS system, which includes important information available only to CREA members. Before listing a property on MLS, agents must agree to comply with CREA’s restrictions on the service options they provide to Canadian consumers.

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.

“The Bureau is focused on striking down these anti-competitive rules, so that real estate agents wishing to offer innovative services can do so, and consumers can benefit from greater choice,” said Commissioner Aitken. “While the market will ultimately determine prices for residential real estate services, we expect that if the Tribunal strikes down the anti-competitive restrictions, there will be downward pressure on real estate fees in Canada.”

Once filed with the Competition Tribunal, the full text of the Bureau’s filing will be available on the Tribunal Web site.

The Competition Bureau is an independent law enforcement agency that contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.

Out of Retreat: Private Equity Investors To Boost Real Estate Allocations in 2010

Building A Case for a Second-Half Recovery in 2010

OTTAWA – February 8, 2010 – The Canadian Real Estate Association has revised its forecast for home sales via the MLS® Systems of Canadian real estate boards in 2010, and extended the forecast to 2011.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010.  Annual activity in 2010 is forecast to be well above the previous year’s level as a result.

CREA forecasts national activity will reach 527,300 units in 2010, up 13.3 per cent from 2009. This would represent a new annual record, standing 1.2 per cent above the previous peak in 2007. Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

National home sales activity is expected to remain strong in the first half of 2010, fuelled by low interest rates and homebuyers motivated to avoid the HST before it comes into effect in Ontario and British Columbia.  Over the second half of the year, national activity is expected to trend downward as the last of pent-up demand is exhausted, interest rates begin rising, and the HST comes into effect in Ontario and British Columbia.

Interest rate increases will contribute to weaker national sales activity in 2011.  National home sales activity is forecast to decline 7.1 per cent to 490,100 units in 2011, putting it on par with annual levels reported in 2005 and 2006.

“Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing, and support overall housing demand,” said CREA President Dale Ripplinger.

The national average home price is forecast to climb 5.4 per cent in 2010, reaching a record $337,500, with average price gains forecast in all provinces. The national average price increase will continue to reflect upward skewing from the rebound in activity among Canada’s priciest markets, particularly in British Columbia and Ontario.

The national average price is forecast to ease by 1.5 per cent in 2011. Modest average price gains are forecast for all provinces except British Columbia and Ontario, whose share of national activity is expected to ease. The shift in the contribution made by provinces toward national activity will continue skewing the annual comparison in the national average price in 2011.

The price trend is similar but less dramatic for the weighted national average price, which compensates for changes in provincial sales activity by taking into account provincial proportions of privately owned housing stock. The weighted national average price is forecast to climb 4.8 per cent in 2010, and remain stable in 2011.

“Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009,” said Chief Economist Gregory Klump.

“Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years, especially if the U.S. economic recovery proves to be weak and protracted,” said Klump.

“The Bank of Canada will need time to gauge the effect of interest rate increases on Canadian economic growth,” Klump said.  “It recognizes that consumer debt burdens are running high, so it will want to gauge the impact of interest rate hikes on domestic demand and overall economic growth. Changes in interest rates impact the economy with a lag, so the timing and magnitude of interest rate hikes will be tricky, given that the Bank expects the private sector to lead economic growth once temporary government stimulus spending expires,” he added.

“The decline and subsequent rebound in sales activity for homes in the upper price spectrum in some of Canada’s priciest markets skewed average prices upward in the second half of 2009 and into 2010. This segment of housing activity in Ontario and British Columbia is expected to ease beginning in the second half of 2010, causing average prices to moderate in those provinces,” said Klump.

“A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the U.S.”

CREA Residential Market Forecast:

Residential unit sales forecast	2009	2009 Annual percentage change	2010 Forecast	2010 Annual percentage change	2011 Forecast	2011 Annual percentage change
Canada	465,251	7.7	527,300	13.3	490,100	-7.1
British Columbia	85,028	23.4	101,900	19.8	88,800	-12.9
Alberta	57,786	2.5	63,050	9.1	64,000	1.5
Saskatchewan	10,856	6.5	10,900	0.4	11,050	1.4
Manitoba	13,086	-3.2	14,050	7.4	14,350	2.1
Ontario	195,840	8.2	223,700	14.2	200,300	-10.5
Quebec	79,290	3.3	87,950	10.9	85,450	-2.8
New Brunswick	7,003	-7.3	7,550	7.8	7,700	2.0
Nova Scotia	10,021	-7.8	11,400	13.8	11,500	0.9
Prince Edward Island	1,404	-0.6	1,450	3.3	1,450	0.0
Newfoundland	4,416	-5.9	4,900	11.0	5,050	3.1

Residential average price forecast	2009	2009 Annual percentage change	2010 Forecast	2010 Annual percentage change	2011 Forecast	2011 Annual percentage change
Canada	320,333	5.0	337,500	5.4	332,400	-1.5
British Columbia	465,725	2.4	485,500	4.2	476,600	-1.8
Alberta	341,201	-3.3	357,300	4.7	361,700	1.2
Saskatchewan	233,695	4.1	242,500	3.8	248,500	2.5
Manitoba	201,343	5.8	210,300	4.4	215,300	2.4
Ontario	318,366	5.3	332,700	4.5	326,000	-2.0
Quebec	225,412	4.7	240,500	6.7	249,100	3.6
New Brunswick	154,906	6.3	159,400	2.9	164,200	3.0
Nova Scotia	196,690	3.6	200,900	2.1	204,700	1.9
Prince Edward Island	146,044	4.4	149,900	2.6	153,200	2.2
Newfoundland	206,374	15.6	222,300	7.7	238,900	7.5

NOTE: All statistics contained in this release are obtained through analysis of the MLS® Systems of real estate Boards across Canada.

MLS® Systems are co-operative marketing systems used only by Canada’s real estate Boards to ensure maximum exposure of properties listed for sale.

About The Canadian Real Estate Association

The Canadian Real Estate Association (CREA) is one of Canada’s largest single-industry trade associations, representing more than 98,000 real estate Brokers/agents and salespeople working through more than 100 real estate Boards and Associations.

Registrants in any province who become members of organized real estate have an obligation to act in accordance with the REALTOR® Code. This Code outlines the accepted standard of conduct for all real estate practitioners who are members of a real estate Board or a Provincial Association.

CREA owns the MLS® and REALTOR® trademarks, which signify a high standard of service and identify members of CREA.

For further information, please contact:

Spencer Callaghan, Communications Officer
The Canadian Real Estate Association
P: 613-237-7111 or 613-884-1460
E: scallaghan@crea.ca

To view the complete release visit: http://www.crea.ca/public/news_stats/pdfs/nationalresidentialforecast2010.pdf

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