The Hintze Team Blog

U.S.-Style Home Price Correction Unlikely in Canada


The Canadian Real Estate Association (CREA) released a new report today indicating that home prices will stabilize, and will remain stable for some time. This means that Canadian homeowners are unlikely to experience a U.S.-style decline in the value of their homes.



“The relationship between average price and income has recently been cited as portending a U.S.-style correction in Canadian home prices,” said Gregory Klump, Chief Economist, CREA. “However, such warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics.”



Home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. By contrast, income generally follows an orderly upward trend over time. For home prices to keep pace with incomes, they must rise faster during housing booms to make up for periods of little or no price growth. Canadian home prices were stagnant throughout most of the 1990s, while incomes continued rising, making housing more affordable. Over the past decade, home prices have climbed sharply as mortgage interest rates declined.



Klump adds: “The Canadian housing market is now widely thought to be at, or very near, the top of a cycle, and the ratio of home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle. History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again.”



The bursting of the U.S. housing market bubble has sparked fears that Canadian home prices may share a similar fate. However, according to Klump, “warnings to this effect ignore solid Canadian mortgage market trends.”



Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle. Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. These trends are expected to help Canada avoid a U.S.-style housing crisis.



The correction in U.S. home prices is set against a massive oversupply of homes due to distress sales, combined with a drop in housing demand due to unemployment. The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices.

Home sales very strong in April

The number of homes sold through the MLS® System of the Parry Sound Real Estate Board was up considerably from year-ago levels in April 2010 Meanwhile, new listings set a record for the month.

According to statistics provided by the Board, home sales numbered 50 units in April 2010, 43 per cent above levels reported in the same month in 2009. This is the highest level from April sales activity in six years, and the third best ever.

“Home sales came in very strong in April,” said Shirlene Johnston, President of the Parry Sound Real Estate Board. “It is likely that some future demand is being pulled forward by buyers motivated to finalize purchases in advance of interest rate hikes and the introduction of the HST.”

Both new and active listings posted records for the month of April in 2010. The number of new residential listings on the Board’s MLS® System rose 25 per cent from year-ago levels to 147 units, the fourth consecutive increase. Active residential listings numbered 632 units at the end of April, up 17 per cent on a year-over-year basis.

The residential average price of homes sold through the MLS® System of the Parry Sound Real Estate Board was $269,668 in April 2010. This is up 22 per cent from year-ago levels.

The dollar value of all home sales in April 2010 amounted to $13.5 million, up 74 per cent on a year-over-year basis. This is the highest dollar volume on record for the month of April.

There were 12.6 months of inventory at the end of April 2010, down from one year earlier (15.4 months) and the lowest level since October 2009. The number of months of inventory is the number of months it would take to sell current inventories at the current rate of sales activity.

The Parry Sound Real Estate Board is committed to a high standard of business practice, strong business ethics, and continuing education development that assists REALTORS® in effectively serving the real estate needs of the community. With over 100 Members, its REALTORS® service a large geographical area, extending from the French River to the north, southerly to Go Home Lake Road, easterly to the Highway 11 corridor, and westerly which includes the shores of Georgian Bay.

7 Tips To Lower Home Construction Costs…
1. Contact Local Builders: talk with several custom builders in the geographical area in which you plan to build to get a rough idea of what it may cost to build your house. Builders can give you a range of costs with the associated quality/features. If you are serious about building and feel comfortable with a particular builder, consider having the builder work up some more detailed plans and an estimate of costs as part of a design-build process.

2. Start With Plan The Builder Has Used Before: It may be to your advantage to start with a plan that the builder has used before and "customize" it to suit your objectives. The builder already knows how much it cost to build and what it took to build that particular model.

3.Standardize The Size of Home: When building a home, it's best to work with even numbers. Have your home size rounded up or down to increments of two feet. This reduces wasted materials. Also, it's most economical to build a home which is no deeper than 32 feet. If the depth exceeds 32 feet, then your roof trusses may need to be specially designed and will be more expensive.

4. Some Features Cost More: The most expensive areas in a home are usually the bathrooms and kitchen. The number of windows and the size and quality of windows can also affect the cost. Vaulted ceilings and high roof pitches can increase the cost of a home. When using other homes to calculate an estimate, be sure the home has a similar style and features of the home you plan to build.

5.Shape of Home: Homes that have a rectangular or box shape cost less to build. Having more angles and corners in the shape of your home can increase the amount of labour and materials needed to build a home. Dome shaped homes also make efficient use of materials and tend to cost less than other shapes.

6.Chose A Relatively Flat Lot: Preparing a site for construction can have a big impact on the cost of a home. Building on a flat lot will usually cost less. If you have to haul in lots of dirt, do a lot of grading, clear trees, or blast through large rocks, then site preparations can become more expensive.

7.Careful Planning: Usually the finished cost of a home is more then the original bid price. Cost overruns occur from overspending the allowances, making changes and encountering unforeseen problems. Proper planning can greatly reduce cost overruns. Builders love change orders and it is so critical that you have as few of these as possible which means that your specifications must be as detailed as possible. In general, it is a good idea to allow an additional 10% to cover unexpected costs.

SOURCE: www.ontario-home-builder.com