Average Prices Drop in August – “Boom in the Housing Markets is Definitely Over”

CREA announced yesterday that the average price of a residential property sold through the MLS last month was $316,052. This represents a year over year drop of 5.1 per cent - the largest since 1996.  They also reported that sales across the country were down by 19 per cent.

“The report underscores the current shift in the Canadian housing market, as the tone of activity moves slightly closer to a buyer’s market,” said Millan Mulraine, economics strategist for TD Securities in an economic note yesterday.

One positive, according to the Canadian Real Estate Association yesterday, is that new listings are down from record levels of the previous four months. Fewer listings means less inventory on the market. The association says price declines in pricier markets, mainly in the West, have pulled down the average price.

“The boom in the housing markets is definitely over,” Tsur Somerville, a professor in the Sauder School of Business at University of British Columbia said in an interview. “Depending on where you live, you can likely expect prices to fall further.”

Somerville, in a study released this month, looking at the relationship between house price and rents estimates that housing prices in some Canadian cities such as Regina, Winnipeg, Ottawa and Montreal, would have to drop as much as 20 per cent to be in balance. The professor found only Toronto and Edmonton house prices were not overvalued in the first half of 2008.

Put another way, average Vancouver house prices would have to fall by $85,000, in Winnipeg it would be $74,000 and Ottawa $81,000.

Just because homes are overpriced doesn’t mean the market will plunge to equilibrium, Tsur said.

Toronto housing prices are not out of line because they have not had the explosive growth of other cities, Sommerville said. “Some cities look way out of line when you run the numbers, but Toronto is bang on.”

Sommerville cautioned that the study was based on existing detached home prices and rents and did not include condo stocks.

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Source: http://www.thestar.com/News/GTA/article/499739

Click here for Professor Sommerville’s recent report on the relationship between house prices and rent

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