CREA FORECASTS HOME SALES TO DROP TO 360,900

February 10, 2009

Sign Of Times; Average price expected to fall 8% this year

Garry Marr, Financial Post  Published: Tuesday, February 10, 2009

It is a sign of the times, but the few people interested in buying a home these days are refusing to do so unless they get some type of ironclad agreement that they can sell their existing home.

The number one condition buyers are putting on offers today is a demand they sell their own house before they are obligated to buy yours. It's not hard to see why they are worried about selling. The Canadian Real Estate Association said yesterday it expects sales this year to drop to 2000 levels after a 16.9% decline in activity from 2008.

"They are lot of realtors who are not accepting offers [with that condition]," said Gregory Klump, chief economist at CREA, adding that it has nevertheless become commonplace to make those type of conditional sales offers.

The latest forecast is not going to give consumers much more comfort. CREA said sales will drop to 360,900 nationwide this year and will not rebound until 2010 when they are expected to rise by 9.9%.

The group, which represents 100 boards across the country, said the average sale price is expected to fall 8% this year on a national level before rising 1.1% in 2010.

The bad news in the resale housing market has spilled over into new home construction.

Canada Mortgage and Housing Corp. said yesterday they were 153,500 new homes built last month on a seasonally adjusted annualized basis, down 10.9% from December.

"Consumers are in a funk. Every bit of economic news that comes out seems to confirm what people had expected that we are heading into rough economic times," said Mr. Klump.

"Everybody is hunkered down, expecting a deep, long recession. If you are not secure in your job, prices can be cut in half and interest can be free but you are not going to buy a home."

Despite the dramatic slowdown in sales, price declines have been relatively muted. The average sale price of a home last year was $303,594, a 0.7% drop from 2007. By the end of 2009, the average sale price will fall to $279,400 before climbing to $282,400 in 2010, CREA forecast.

Phil Soper, chief executive of Royal LePage Real Estate Services, says panic selling has not hit the market in Canada and most of the selling is voluntary.

"We expect this correction in the market will last seven quarters," says Mr. Soper, adding the market has been shrinking since the first quarter of 2007.

"When we reach the fourth quarter, we will be comparing ourselves to a dismal fourth quarter of 2008 and we believe the comparables will be positive from an industry revenue standpoint. We don't expect prices to rebound until 2010."

Pascal Gauthier, an economist with TD Bank Financial Group, said there is a certain "stickiness" to prices, when the housing market slumps. "People say my neighbours' house may be worth 20% less but not mine."

He expects prices to fall slightly more than CREA is predicting in 2009 but even his forecast 11% drop in average price is not overly dramatic.

"We have people testing the market [by selling] but we are still not looking at desperate sellers," he says.

At the same time, Mr. Gauthier says buyers continue to count on even steeper discounts that have not materialized.

"I think some people are expecting a U. S. type of correction," he said.