Thursday, February 21, 2013

Mixed messages from media – it’s the norm

Once again, we are getting mixed messages from the media. Headlines warn that house prices are easing, yet on further reading, we find that only a few major centres are feeling the pinch. In local markets, prices have stabilized and even increased slightly.

For example, in Vancouver, prices fell 0.81 per cent in January from December, and were down 2.54 per cent from a year earlier. Prices in Calgary slipped 0.1 per cent on the month, but rose 4.29 per cent on the year. And Toronto saw prices dip 0.37 per cent between December and January, but register a gain of 5.31 per cent from a year earlier.

While prices may be stabilizing, sales are lower than a year earlier. Information from The Canadian Real Estate Association (CREA) showed the number of sales had not changed much month-to-month since September, 2012. That just changed with CREA’s latest report released on February 15 stating that national home sales activity edged up on a month-over-month basis in January 2013.

Yes, the housing market has cooled since January 2012 but signs point to a fairly healthy spring market.
Despite recent media attention to a slowing housing market as well as reporting on job losses, and an underperforming economy, as usual, things are not as bad as they seem.  Really! Let’s first take a look at what’s happening in the U.S.

That country’s export market expanded in the fourth quarter of 2012, which means that factories are increasing their output and products are being sold. This is a good omen for the manufacturing sector there and it points to an increase in trade with other countries.

There are positive signs in the retail sector and in the consumer credit market – people are starting to spend more, albeit it’s slow, but still a good sign. 

While average home prices in the U.S. are still about 30 per cent lower than their 2005 peak, the long road to recovery has begun. Real home prices in the third quarter of 2012 were 5% higher than a year ago.
In Canada, we need to accept the market for what it is – balanced – which, actually means normal. A hot real estate market is not the norm, yet people think that anything less than boom times is doom and gloom.  Hot markets can’t be sustained. It’s great when we’re in it – all sectors benefit – but eventually, the market returns to normal.

According to a report by Benjamin Tal, Deputy Chief Economist for CIBC, the Canadian economy is making sense again. Both the labour market and housing starts, although weaker than what we’ve been experiencing, he says, are in line with what we should be seeing at this point.

The big picture is that the Canadian economy will probably grow by 1.7%-2.0% in 2013 and that’s normal.

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