Housing prices keep edging up

By Tony Wong
Prices in the new home market increased for the 12th straight month in a row, according to figures released by Statistics Canada on Thursday.

But housing market indicators released in the past few weeks have been so contradictory that builders, realtors — and vendors — are far from relaxed looking ahead to 2011.
Bob Finnigan of Heathwood Homes, for example, closed out 2010 on a high note after selling more than 300 houses across the Greater Toronto Area last year, up from about 180 the year before.
But like many Toronto builders, he’s not sure what this year will bring.
“I cringe sometimes when I see these reports because they’re all over the map,” says Finnigan. “One group says we’re in trouble, the next guy says don’t worry about it.”
Finnigan says he sees the market going “sideways” this year, as consumers digest higher rates and work through debt.
“The world and the global economy is certainly not by any stretch what you could call normal as yet,” says Finnigan, the chief operating officer of Heathwood. “We’re watching interest rates very closely. Affordability is key for consumers.”
And that could be dropping as prices rise at the same time as interest rates.
Consider the new housing price index for the Toronto market rose by 0.2 per cent in December over November. At the end of 2010, builders had increased their prices by a cumulative 2.3 per cent over the previous year.
Meanwhile, price growth in the new homes market was more modest compared with the resale market, which saw a 9 per cent jump in 2010 over the prior year.
More competition and supply has meant that builders have struggled to keep a lid on prices, even though sales have improved.
“Pricing is at the top of mind for everyone,” said Finnigan, who is also the president of the Ontario Home Builders’ Association. “There is not a lot of ability in the market to absorb further price increases.”
Winnipeg, Halifax and Toronto were the three biggest movers for the month.
Not all cities saw increases, Statistics Canada reported. The biggest hit cities included Windsor, which has been hit by a loss of manufacturing jobs, down by 0.6 per cent. Montreal and Quebec were also down by 0.3 per cent.
“In Windsor, prices declined, even as builders offered incentive packages to stimulate sales,” said Statistics Canada.
But nationally, the index rose by 0.1 per cent in December, following a 0.3 per cent advance in November.
“This reflects the continued recovery of the overall housing market in Canada, “ said Queen’s University Urban and Regional Planning professor John Andrew. “However it is tracking a bit behind inflation and significantly behind new housing starts.”
Andrew warns that developers could be vulnerable if interest rates rise later this year. According to a forecast by BMO Economics, the key overnight rate is expected to rise from 1 per cent mid year to 2 per cent at the end of 2011.
“My concern is that new house construction is being supported by unsustainably low interest rates that continue to attract first time buyers,” he said. “As soon as interest rates begin to rise significantly, residential developers could get hit hard, both in terms of lower sales and the cost of their own financing.”
In fact, this year is expected to be a muted year for housing.
A TD Economics report on Wednesday said Ontario was one of four provinces that are financially vulnerable because of high debt loads.
The Canadian Real Estate Association forecast this week that housing prices were expected to increase by 1.3 per cent — or likely below inflation — in 2011.
Still, that was better than the forecast 25 per cent drop in housing prices by Capital Economics last week. The conflicting reports have further confused consumers who are trying to figure out when to dip their toes in the market.
The job market — as well as interest rates— are important barometers to watch to see the health of the economy. Without jobs, people won’t be able to afford homes, says Finnigan.
Meanwhile, the latest housing report by the Bank of Montreal Thursday lands firmly in the “soft landing” camp.
“Like the resale market, new home prices have cooled considerably since 2008 from the unsustainable surge of the previous eight years,” said economist Sal Guatieri. “Prices are now rising more slowly than incomes, supporting affordability and reducing the risk of a correction when interest rates normalize. Simply put, Canada’s housing market appears to be landing softly rather than crashing.”