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More of the Same ... Maybe

Reviewing the attached graph, you will see that there are no significant changes in sales volume over the last three years. What the graph does not reveal is that the number of properties for sale, the “inventory”, has increased in the last year. We currently have a 3 month supply of homes in the Guelph MLS trading area (341 units sold in June versus 1025 active listings as this goes to print). A balanced market, when neither buyer nor seller has the negotiating advantage, is considered to be when there is a 90 day supply of inventory. So we have moved from a seller's market to a balanced market.

Anecdotally, those in the industry report that there are fewer multiple offer situations on properties that are for sale. In addition, price reductions on listed properties arebecoming more common. This is not all doom and gloom. It is simply a return to what is considered a “normal” market.

There are many contributing factors. Canada Mortgage and Housing (CMHC) reports that pent up demand, reaching back to 1995 is finally through the system. Many folks were stung so significantly in the recession of the early 1990's that it took some time to get their financial feet under them again, and to restore their consumer confidence. As a result, CMHC is predicting a 10% drop in new home sales in Canada this year. CMHC is quick to note that the predicted decrease in demand is not due to any structural weakness in the economy.

The federal government, in response to a robust economy, has increased interest ratesby ¼% this month. Another increase is Expected in September in an attempt to temper what is considered to be an undesirable 2.5% inflation rate. No doubt this will have the desired effect of dampening demand for big ticket items.

The third important factor affecting housing demand is that Canadian's personal savingsare at an all time low. In 1995 the average Canadian saved 9.2% of earnings. Today it is 2.9%.

Long term demographic factors are expected to impact housing demand. Over the next decade annual population growth is expected to fall to 0.8 % due to historically low fertility rates. Our strong wave of immigration since the early 1990's is expected to buffer this trend somewhat, an important consideration for housing as new Canadians tend to put a high priority on acquiring a home in their new country.

Even Calgary, the hot bed of economic activity in Canada at present, is reporting a swing in the market. In June of 2006 there were 1700 properties for sale…this June…8000. So expect a moderation ofhousing price surges in oil country.

In closing, something to ponder. While most assume that people are surging ahead buying huge houses, consider that only 4.3% of the houses sold in June were over $500,000. Yet over 56% of those sold were in the $150,000 to $300,000 price range.
Hmmm.