Canada's frozen housing market is beginning to thaw due to rising demand and fewer new listings, according to a new report from Scotiabank.
The latest Real Estate Trends report, released Tuesday by Scotia Economics, says home sales strengthened in February and March although they were still down nearly eight per cent year-over-year.
In April, preliminary reports suggest the firming sales trend continued.
"On an annualized basis, average home prices in early 2009 are running about six per cent below last year's levels, while sales volumes are down 16 per cent, " Adrienne Warren, a senior economist at Scotia Economics, said in a press release.
"This is tracking a slightly better performance than our forecast for a 10 per cent decline in average prices this year, and at the low end of our forecast for a 15 per cent to 20 per cent drop in sales."
Still, Warren said the bank feels there is more downside than upside risk to home sales and prices.
"The significant deterioration in domestic labour markets in recent months suggests little prospect for a major resurgence in demand near-term," Warren said.
"Meanwhile, a still high level of active listings relative to underlying demand will continue to pressure prices."
The report says the supply of new condo units coming onto the market is outpacing demand, which will apply a downward pressure on prices.
"However, the risk of developing a late-1980s-type glut, and an ensuing broad reversal in prices, still appears low," says the report.
It cites a number of factors that should help prevent a "broad reversal" in the condo market:
- sharply lower multi-unit starts
- falling permit demand
- tighter financing requirements for developers
- low rental vacancy rates
- improving first-time buyer interest
"In addition, we expect an increasing number of pre-construction project cancellations. A large share of unsold units are in pre construction stage," Warren said.
"Many of these projects will likely not go ahead, failing to achieve a sufficiently high level of sales to obtain financing. To the extent that any existing projects are cancelled, this in turn will create a pool of displaced buyers re-entering the market."
