Canada's Remarkable Housing Rebound

Economists are running out of superlatives to describe the rebound in Canada’s housing market, in which sales are up over 60% from earlier this year. “The speed and magnitude of the rebound in sales activity is remarkable," says the Canadian Real Estate Association (CREA). Association president Dale Ripplinger says, "The difference in the resale housing market now, compared to the beginning of the year, is night and day."

"The Lazarus-like rise in sales has halted the slide in prices “ says Douglas Porter, deputy chief economist at BMO Capital Markets. "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. The extent of it is nothing short of amazing,"

Most economists were caught by surprise, and most of them have had to revise their real estate forecasts for this year. CREA predicted in May that MLS sales in Canada would drop by 14.7 per cent this year compared to 2008. Now, it says sales will decline by just 0.4 per cent. The association also says prices will rise by 1.5 per cent this year. Canada Mortgage and Housing Corp. (CMHC) also has a revised forecast, and is calling for a small drop in sales activity and sales.

In the Toronto market over he past three months, resale activity has been much stronger expected, and the sales rate has been raised very substantially.

So what happened? Why is housing leading Canada's economic recovery?

"Low interest rates are boosting sales by returning homebuyers to the market who dropped out last year," says Gregory Klump, CREA's chief economist. "Buyers are also shifting purchase decisions forward as they take advantage of attractive interest rates .

With prices and activity down early this year, many sellers decided to take their homes off the market until the situation improved. That created a shortage of listings, and thanks to the law of supply and demand, stopped the slide in prices. In August, it's been reported that 14 per cent of listings in the Toronto market had multiple offers submitted.

"Yes, Virginia, it's a sellers' market again," says Porter. "The biggest, priciest, and previously hardest hit markets are the very cities that are now rebounding most rapidly."

Now, the economists are over their shock and are throwing cold water on the idea that the market can continue to expand at this rate.

Klump says that since buyers moved their purchases ahead to take advantage of low mortgage rates, next year will see a more stable market.

The strong pace seen in the second quarter of this year reflects, in part, activity that was delayed in the previous two quarters and is not likely to be sustained," says CMHC. "The level of sales will move back to be closer in line with improving economic conditions."

Only Porter at BMO Capital Markets seems to be hedging his bets in predicting the boom times are over. "Record-low borrowing costs and the mounting sense that the worst of the economic storm has passed are the key ingredients in the remarkable turnaround," he says. "We keep saying that further gains will be harder to come by, but the market keeps churning out those gains."

Why Pricing Your House Right is So Important

Perhaps the greatest influence in getting your home sold quickly is entering the market with a home that's priced correctly.

Over-priced homes won't get favorable attention; they lose out to the ones that are reasonably priced.

All sellers are looking for the highest price for their home. That's why some sellers want to start at the highest point, maybe even asking a higher price than what they really believe they can get -- the continued readjustment of price can be a humbling ride down to finding the reasonable price to sell the home.

Still dropping the price sounds like an okay strategy, some sellers think.

Here's the problem, especially in today's current market conditions where numerous sellers are competing for fewer buyers -- adjusting price down may come too late and cost the seller less in gain than if the home were priced correctly from the start.

The majority of buyers use buyers' agents to assist them with purchasing a property. Buyers' agents will help the buyers find a home that's right for them. If their buyers are interested in a particular home and it is priced too high (based on comparable properties sold) then the buyers' agents will find their clients similar more reasonably priced homes to view in the same area, plus they don't want to insult you.

As a seller's property that's over-priced continues to sit on the market the listing loses its newness. There are typically fewer new listings than existing listings. Agents pay a great deal of attention to what's new on the market. Homes that are priced correctly generate attention, activity and a sale; over-priced homes, on the other hand, sit for long periods, are passed over, and ultimately result in a price reduction.

If a seller has an over-priced home on the market and then chooses to drop the price it sometimes goes overlooked. Because it's not a new listing it'll need a little more attention to get agents and buyers to notice that this same home is now being offered for less.

Flyers, emails, ads, etc. have the challenge of enticing buyers and agents who wouldn't give it a look at the higher price -- to come see it now. Not an impossible battle, but again, the listing is no longer new and may be less appealing even with the price reduction.

Obviously, the longer an over-priced home sits on the market, typically the more financial stress the seller begins to feel. If the seller has purchased a new home or must move to another city, suddenly the desperate seller syndrome sets in and lowball offers may have to be accepted due to financial circumstances.

Pricing a home correctly initially is vital -- otherwise the "we-can-always-drop-our-price" strategy could become a costly and humbling lesson in the end.