2012 could well be recognized as the start of the housing correction in Canada. Sales are down, prices are down, the MSM is talking about it.... the usual spin-mesiters are out in force trying to play down fears of a significant drop, while Scotia has said that's pretty much it.
Meanwhile the bears are rubbing their hands in anticipation of a spring no-show by buyers and some major reductions by the summer.
Either side could be right. We will have to watch the data and news flow. Of course there is observer bias. Basically, people can look at any set of data and justify their own point of view. It is hard to be neutral on such an emotional subject.
On the bears side...we have a clear break down in sales pressure and prices. We also have an incredible amount of recent buyers trying to sell in the market. Some stats show 20-30% of listings in some expensive areas were bought in 2011! I suspect some of these are in the tear-down-build-flip or renovate-flip category, others are probably washing local drug or off-shore hot money. There is no other explanation for someone buying a multimillion dollar home and trying to sell it a year later. I wonder if the banks and CMHC were willing partners in this speculation.
We also have a government that has belatedly come to it's sense and started to reign in the CMHC (which it hated as being too socialist, but then liked so much they doubled it) and started to reverse some of their own foolish mortgage decisions.
Immigration and demographics are working against our housing too. Lastly, all the magic bullets have been shot. If housing slows again significantly, what can the Governments do? The Provincial Government is cash strapped and deep in debt, despite accounting shenanigans, and cannot throw more money at this industry or buyers and the Federal Government would face a very embarrassing about-face to re-reverse! Meanwhile interest rates are still at near zero levels and cannot go much lower unlike 2009.
The most important factor however is psychology. The buying folk are getting more relaxed and the pressure is off. If they don't bargain, they feel like they have been suckered. No more realtors saying, buy at/above listing price or it's gone.
Ok what do the bulls have on their side. Quite a bit too. Even though sales are down, listings are down too, so we are not having the ballooning of inventory like 2008/9. Rates can't go much lower but they are pretty low already, the lowest in memory. Unemployment is still low and while prices are too high, maybe incomes will grow to catch up while prices stay stagnant. Sellers are being obstinate for now and prices may have stabilised.
Also China looks like it will have a soft-landing, good for commodities, and the Chinese will probably be back in our local market as buyers after the Feb 10th 2103 Chinese New Year, when our prices seem to have a boost up every year. Though the Chinese Government has been cracking down on some of the corrupt money barons.
The fiscal cliff in the US has been averted too, it seems, so the nascent recovery will not be snuffed out.
It won't be clear until it is. Looking at the chart, I expect a drop in the average below $1M to seal the deal. It was a shock on the way up and will no doubt be equally so, on the way down (if indeed we see that)
You know what my views are, but as always I will await the data flow.
Have a great 2013.
