Home > personal finance, real-estate > Pouring cold water on ‘improved’ housing activity

Pouring cold water on ‘improved’ housing activity

Canadian real-estate has received more than its fair share of coverage in main stream media lately…

The quacks at CREA say housing activity  “improved” …

Seasonally adjusted national home sales activity rose 4.5 per cent in January 2011 compared to the previous month, reaching the highest level since April 2010. Led by Vancouver and Toronto…

Actual (not seasonally adjusted) national sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards came in 6.6 per cent below levels in January 2010. This was the smallest year-over-year decline since May 2010.

Now if it hadn’t been for Flaherty’s tinkering with mortgage rules and pulling demand forward and creating a buying panic, sales activity would be lower…agree? I will explain why…Lets look at GTA since it accounts for the biggest share of Canadian housing activity and it led the “improvement”…

The Toronto Real Estate Board publishes mid-month &  monthly sales figures;

Mid-month figures for January 2011

January 19, 2011 — Greater Toronto REALTORS® reported 1,563 sales during the first two weeks of January 2011 – an 11 per cent decrease compared to the first two weeks of January 2010. See details.

Until 15-Jan-2011, sales in GTA were 11% lower than Jan 2010… then on 17-Jan-2011… The federal government acts prudently (in my opinion) and announces new mortgage lending rules… How did those changes affect sales for the rest of Jan 2011?

Monthly figures for January 2011

February 4, 2011 — Greater Toronto REALTORS® reported 4,337 transactions through the TorontoMLS® system in January 2011. This result was 13 per cent lower than the record result reported in January 2010. See details.

So even after taking some heat of the housing market and creating an apparent demand pull, January 2011 sales were 13% lower than Jan 2010… Perhaps 2010 was a record so maybe not a good year to compare?…  Sales were 3.5% lower compared to the average sales from 2006-2010… even when including the paltry 2670 units in 2009!! (it is a clear outlier)

Moving on to Feb…

February 17, 2011 — Greater Toronto REALTORS® reported 3,084 sales during the first two weeks of February 2011 – a 13 per cent decrease compared to the first two weeks of February 2010. See details.

One month since the announcement and sales are lower than last year… if there was no government intervention, logic dictates that sales would be even higher because people (first time home buyers) would rush to buy a home on more favourable terms.

Admittedly though, compared to average Feb sales between 2006-2010, mid-month Feb 2011 sales were 6.2% higher.

via Toronto Real Estate Board.

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  1. Gary
    February 23, 2011 at 1:36 PM

    I think I mentioned this on your previous housing post but the data from Toronto’s first two weeks of February are indicative of a few things.

    1) Juiced high leverage buyers have basically run out. With demand drying up even with the upcoming deadline looming, look for price to stabilize or fall up until end of March. Average values still might tick up slightly due to higher end sales transactions.

    2) Markets have been largely driven by emotion, “green shoots” euphoria, and the prevalence that low borrowing costs will persist. Recent developments as per inflation figures, global civil unrest, rising oil prices have pulled back momentum chasing spirits.

    3) Pent up supply is looking to unload in the spring and without a resurgence of buying frenzy look for sooner-than-expected price adjustments to the downside. Like I said before, it’s possible that sellers will sit back on the sidelines to wait for the return of a seller’s market. However, this won’t last long as most speculators have leveraged up to the hilt and will not be able to carry the costs with negative cash flow for long.

    As always, corrections always take much longer than you’d think to arrive. However I expect to see mainstream articles by the summer. That will assist in precipitating the further fall in prices.

    I’m not going to bother trying to interpret the stock market since it’s out of the scope of the post but I will say that the uncertainty in the middle east plays a huge part in how the markets will react in the interim. The market despises uncertainty and if Greece/Euro riots, Arabian revolution, and Korean bank runs don’t bring the uncertainty levels to a fever pitch; DOW 20,000?? I really can’t see how it could have gone as far as it is now. But here we are.

    Regards,
    Gary

    • February 24, 2011 at 10:18 PM

      thanks for your comments, Gary. I agree with all points and like your analysis of the facts… particularly the supply/demand dynamics.

      I think we saw some of point 3 in 2008 when sellers decided to pull out en masse!

      stock market has become a political economy since QE2 – Bernanke hasn’t left any room for old fashioned analysis… it is the raging “macro” theme where fundamentals and technicals become useless.

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