TD predicts trouble for B.C. real estate, Toronto condos

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TD predicts trouble for B.C. real estate, Toronto condos

MICHAEL BABAD | Columnist profile | E-mail

Globe and Mail Update

Published Wednesday, Jan. 04, 2012 7:45AM EST

Last updated Thursday, Jan. 05, 2012 4:05PM EST

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Vancouver, Toronto face troubles?
British Columbia and Ontario could both face some real estate troubles over the next two years, though economists don't foresee a bust in Canada's housing market.

British Columbia is forecast to have it worse, said senior economist Jacques Marcil, and will likely see "a signifcant correction" this year. Indeed, he said in a report today, the Vancouver market likely peaked last year.

The report, which examined the country's provincial economies, projects home resales in British Columbia will sink 3.7 per cent this year, while prices decline 3.5 per cent.

"The correction will extend into 2013, as unit resales fall a further 5 per cent while prices slip 4.4 per cent," he said.

Just today, the Real Estate Board of Greater Vancouver reported that sales last year rose 5.9 per cent from 2010, though were 9.2 per cent below 2009 levels. The market is slowing. Sales in December alone were down12.7 per cent from the same month a year earlier. Prices were up by 7.6 per cent, though were down 1.5 per cent from their peak in June of last year.

Mr. Marcil also expects Ontario's housing market to "exert a drag" on its growth over the next few years, notably where Toronto condominiums are concerned.

"In addition to the growing pipeline of supply, the knock-on effects of financial market volatility to buyer confidence will likely result in a cooling down in condominium sales in the region in 2012 and 2013.

In Canada overall, the housing market is losing steam. While a bust is not expected, valuations still remain a concern, senior economist Sal Guatieri of BMO Nesbitt Burns said in a separate report.

"If you listen closely you can hear the sound of air seeping out of Canada's housing balloon," Mr. Guatieri said. "(Unlike a bubble, a balloon can deflate slowly.) Outside of Toronto and Saskatchewan, home sales have moderated since new mortgage rules were introduced in March (for the third time in four years). Markets are balanced in over half the country, but sellers still rule in Toronto, Saskatchewan and Manitoba. Prices have pulled back moderately from spring highs, led by once white-hot Vancouver."

He projected "modest gains" in overall Canadian home sales this year, steady prices, a dip in housing starts and a moderation in mortgage growth from its pace of almost 8 per cent.

• Canada's housing boom among longest in Western world
• B.C. property assessments all over the map

Whither U.S. housing slump?
Is the end of the long U.S. housing bust finally in sight?

Some analysts suggest the lengthy decline in house prices - it has been five years now - could end this year though they're not projecting marked increases.

"Tough credit conditions and rising foreclosures will prevent significant and sustained price gains until 2014," said Paul Dales, senior U.S. economist at Capital Economics in London.

"We now think that prices are close to finding a floor," he added in a report today. "The key difference between this year and last is that banks are a little bit more willing to lend. For example, towards the end of last year lenders were willing to extend a loan worth 80 per cent of the home purchase price up from nearer 70 per cent in 2010."

At the current pace of sales, Mr. Dales said, it would take seven months to sell all the unsold stock in the pipeline. And when you exclude the 2010 "distortion" of a temporary tax credit, it's the first time in five years that that measure of the demand and supply balance is close to its long-term average.

Still, it won't be a rapid rise, and much still depends on how the euro crisis plays out.

"The loosening of credit criteria has so far been modest," Mr. Dales wrote. "And by reducing the ability of households to extract a down payment from their home, the previous fall in prices has shut out up to half of all mortgage borrowers from the mortgage market. Moreover, given how many people were burnt during the crash, it will take many years to rekindle America's love affair with home ownership."

He also projected a further 3 million foreclosures.