Despite warnings of bubbles about to burst in Canada’s major real-estate markets, there’s another side to the story: in some parts of the country, prices are actually falling.
Saskatchewan has been the hardest hit lately, according to the Canadian Real Estate Association’s MLS Home Price Index.
The price index in Regina fell 1.47 per cent from April 2013 to April of this year. From October last year to this April, meanwhile, it dropped 0.92 per cent in Regina and 0.34 in Saskatoon.
Ottawa’s house price index saw a drop of 0.2 per cent from March 2013 to March 2014.
Other markets experienced neither increases nor decreases this April over last, with Ottawa and Victoria sitting at a house price index of zero per cent.
The numbers in the price index are based on the value homebuyers assign to various housing attributes, which typically evolve gradually. Price changes calculated with this tool are said to be less volatile than those determined by measures like average and median prices, which can swing dramatically in response to changes with high-end or low-end sales volumes over time.
Markets in other parts of the country have seen drops in home prices as well.
“We have seen price increases only in major cities and not in smaller markets,” says Oswald Jurock, real-estate investor and author of Real Estate Action: 55 Action Takers Share Their Secrets. “In the Okanagan, the Koonetays, Vancouver Island, and the Sunshine Coast, there’s been between 20 and 30 per cent for last three years in price decline. It’s not something that’s going to happen; it’s already happening.”
Looking behind the numbers
Each market has unique reasons to explain decreases in index and prices, but in Regina, analysts say overzealous developers take some blame: they’ve built too much, too fast. This year’s dreadful winter hasn’t helped, either.
Jurock says it’s no surprise that some markets have cooled.
“Markets have gone up relentlessly for a long period of time, and there always comes a time of equilibrium,” he says.
Sales activity from April 2013 to April 2014 across the country came in below the 10-year average in more than 60 per cent of all housing markets. “This shows that tightened mortgage rules and guidelines are working as intended to keep activity in check despite mortgage interest rates remaining extraordinarily low,” CREA’s chief economist Gregory Klump said in a statement.
So do the latest stats mean investors or first-time homebuyers attempting to save enough for a down payment should be flocking to Regina and Ottawa to buy property? Not necessarily.
“It’s not so much location, location, location, but timing is very important in real estate today,” Jurock says, pointing to Phoenix as an example. “In 2007, I would have bought at the peak and lost my shirt; homes are down 40 percent in value. But if I would have bought in 2011 I would have now made 50 per cent.
Here’s Jurock’s rule of thumb when it comes to seeking out a market: “Prices go where people go, and people go where the jobs are.”
Look at Kitimat, B.C., where thousands of jobs have opened up in the last few years and many more will with LNG and other major projects. “I can tell you right now real estate values are doubling and tripling,” Jurock says.
Not surprisingly, Calgary, Greater Toronto, and Greater Vancouver dominated the year-over-year price growth in April house price index, with gains of 9.52 per cent, 7.01 per cent, and 3.64 per cent respectively.
The national average home price is forecast to rise by 3.8 per cent to $397,000 in 2014, according to the Canadian Real Estate Association, with similar sized gains in British Columbia, Alberta, and Ontario. Modest changes in average prices are forecast for all other provinces this year.
CREA also forecasts a further 1.1 per cent rise in the national average price in 2015, to $401,400. Alberta is poised to post the biggest rise in average price (2.5 per cent), followed by Manitoba (2 per cent).
Prices in Saskatchewan, Ontario, and Newfoundland and Labrador are forecast to grow by about one per cent in 2015, with other provinces expecting marginal gains of close to one-half of a percentage point.