Canada's housing market has become so much more grounded since the ugly property bust of the last recession that this time around it is one of the most resilient sectors of the economic downturn.
The lessons learned from the housing bust of the early 1990s helped prevent Canada from being tempted down the subprime path that devastated the United States and, combined with record low interest rates and government stimulus, has caused the impact of the latest slump to be less severe and relatively short-lived, figures released Tuesday underscore.
"The turnaround in Canadian housing this year might be the single most surprising turnabout we've seen in any economic indicator I can think of," said Douglas Porter, deputy chief economist at BMO Capital Markets. "The fact we saw a little bit of a rebound isn't a total shock, but the extent of it is nothing short of amazing."
Sales of existing homes in June were up a seasonally adjusted 8.7% from the previous month, marking a fifth straight increase, Canadian Real Estate Association figures showed Tuesday. Sales were 17.9% higher than a year earlier. Resales activity rocketed along at a record pace in the second quarter, surging by 31.5% from the first quarter of 2009.
Mr. Porter said the results were "galaxies away" from the yearly decline of about 40% registered at the start of the year.
Millan Mulraine, an economics strategist at TD Securities, said record low mortgage rates were a key difference between the housing bust of the 1990s, when interest rates were on the increase. The shock, the recovery from which took a decade, resulted in Canada introducing tighter lending standards, which helped prevent house prices becoming too overblown prior to U.S. subprime crisis.
Mr. Mulraine said that while the house prices, sales and construction suffered along with the rest of the recession-struck economy this time around, the market's relatively stable condition and the relative health of Canada's banking sector created an opportunity for homebuyers to take advantage of record low interest rates, more affordable prices and government stimulus.
The rise in sales activity as well as a drop in new listing have caused the inventory of unsold homes to fall to 4.2 months of supply -- the lowest level since August 2007 and well below the peak of 12.8 months hit at the beginning of the year.
"Inventory levels are still high in many markets, but fewer new listings and rising sales activity suggests that the selection of homes available for sale may shrink as the year progresses," said Gregory Klump, the chief economist at CREA. "The supply of homes up for sale needs to be drawn down further before average price increases become more widespread among local markets."
The average price of homes sold in the month was up 1.7% from a year earlier, skewed higher by rising demand in some of the country's most expensive markets, such as Toronto and Vancouver.
Mr. Klump said monthly sales activity would likely not continue on an unbroken rise, but activity in the second half of the year would "meet or surpass" the results of the first half.
Other sectors of the housing market have also registered improvements. Figures from the Canada Mortgage and Housing Corporation showed last week the seasonally adjusted annual rate of housing starts rose 8% to 140,700 in June, while Statistics Canada building permits figures showed that construction intentions rose 14.8% in May. Meanwhile, RE/Max data showed sales in both Toronto and Vancouver set new record highs for June activity.
Michael Polzler, the executive vice president of RE/MAX Ontario-Atlantic Canada said the recent surge in resale activity was due to a combination of pent-up demand as a result of the hit to activity at the beginning of the recession with record low mortgage rates and better affordability.
He said recent buyers had been lucky to snap up some of the best real estate deals in years, with conditions now beginning to favour sellers. In the space of just 18 months, the housing market has transitioned from a sellers' market to a buyers' market and back again.
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