Homebuyers winning

Another take on how and why some are winning in this down market.

 

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More evidence of a buyer's market for residential real estate emerged Wednesday in reports relating to new-home prices, builders' profits and improved opportunities for those looking to jump into home ownership for the first time.

Separate reports from Statistics Canada and the Conference Board of Canada showed an increasingly hostile environment for home builders in this country.

The residential-construction industry is expected to see profits fall nearly 20% this year -- the biggest decline since 1995 -- as the economic downturn dampens demand for new homes, the Conference Board said.

Earnings will drop to $3.2 billion in 2009 and to less than $3 billion in 2010, the board said.

"Years of frenzied construction activity had left the market overdue for a correction," said Conference Board economist Valerie Poulin.

A relatively small part of the decline will come from lower prices, the research agency said, while most of it will be the result of fewer new housing projects.

This week, the Canada Mortgage and Housing Corp. said February housing starts were down 12% to an annualized rate of 134,600.

Millan Mulraine, economics strategist with TD Securities, said the good thing about fewer housing starts is that it will lead to less buildup of unwanted inventory, like what was seen in the United States, which would put even more downward pressure on housing prices.

Statistics Canada on Wednesday said prices for new homes in January were down 0.8% from a year earlier, marking the first year-over-year drop in 12 years.

On the brighter side of the market, another report showed that improved affordability in the housing market has created a situation in which first-time homebuyers are becoming the "driving force in Canada's residential real estate markets," according to international real estate chain RE/MAX.

RE/MAX said people are being lured out of the residential-rental markets with both lower mortgage rates and home prices.

"Increased inventory and longer days on market coupled with the lowest lending rates ever are presenting opportunities that have not been seen in almost a decade," RE/MAX said in a statement. Of the 32 local markets it tracks in Canada, RE/MAX said 22 of them are "firmly in buyer's-market territory." It said single-family homes can be found in 40% of these locations for less than $200,000 and condominiums for less than this in more than 70% of these markets.

TD's Mulraine agreed that conditions are ideal are first-time buyers to enter the housing market, or existing homeowners to upgrade, if their respective financial situations are secure. While it's hoped improved affordability might plant the seeds for future recovery in the housing market, Mulraine said there remains many economic impediments.

"The economy as a whole is not in great shape," Mulraine said. "The Canadian labour market itself seems to be turning belly up. For a number of people, it clearly isn't a time to be purchasing or getting into a big investment like buying a home when you're not sure about your employment situation." The Canadian economy lost a record 129,000 jobs in January, according to Statistics Canada, and loss of about 50,000 for February is expected to reported this Friday.

 

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