Friday, July 07, 2006

Eastern Housing Boom Losing Steam

One of the country's longest housing booms is finally running out of steam in Central Canada, just as Western markets are experiencing an unparalleled period of explosive growth.

After a string of record years characterized by heated bidding wars and double-digit gains in prices, major markets such as Toronto, Ottawa and Montreal are taking a breather. Price increases are moving closer to the rate of inflation, multiple offers are less frequent and the number of homes for sale is increasing, industry sources say.

Sure, the heat has come off. It's a good market. It's not a spectacular market like it was.

The growth rate has fallen off considerably. We are clearly reaching the end of this expansion in Central Canada.

What's been happening in Calgary in the last few months is mind-boggling.

The average price of a two-storey home in Calgary is up more than 54 % in the first half of this year compared with a year earlier.

It's like eBay for houses. You have to let the market determine the price.

Some of the dramatic price increases in the Alberta market have to do with the relatively low average prices for homes compared with other major centres such as Vancouver and Toronto. It's a lot easier to have a 50% increase when you start with a $150,000 property.

Average home prices in Calgary are now reaching Toronto levels and they will pass Toronto by the end of the year. The relatively smaller size of the Alberta housing market also has helped to contribute to the rapid price appreciation. Its size makes it easier to "throw the market out of whack." Still the major factor behind the growth clearly is consumer demand, fuelled by the booming energy sector. In Calgary if you hit the street looking for a home, chances are you are not going to find one.

Looking ahead, the price increases will moderate in the coming months, ending the year about 30 % than 2005. The current rate of price appreciation is obviously completely unsustainable. The rising prices will lessen demand as some people decide not to enter the market.

In the rest of Canada, the moderating market conditions will last. "We are in that magic balanced territory. That balance could be upset if the central bank overshoots its targets in raising rates.

The year-over-year increase in average price for Toronto was 5.5 % in May, the most recent numbers from CREA show. In Ottawa it was 4.7 % and 8.2 % in Montreal. That's in sharp contrast to Calgary, where the number jumped by 43.6 %.


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