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Falling rental vacancy rate shows home buyers are more cautious
In the current housing market more people
are choosing to rent, either giving up
on buying or postponing the decision
until prices drop.
It appears prices in the formerly booming
Canadian home market have reached a peak
and are descending. Lower prices are a
good thing for first-time home buyers, but
in the face of lower auto sales in the U.S. (a
big factor in the auto parts economy of
Southern Ontario) and lower commodity
prices (a big factor in the mines and oil
fields of B.C., Alberta and Saskatchewan)
potential buyers are being more cautious.
The feeling is that times will get tougher.
The Canada Mortgage and Housing
Corporation's June 2008 housing survey
shows more people are choosing to rent or
being forced to rent. Nationally, vacancies
decreased to 2.6 per cent in April 2008
compared to 2.8 per cent a year earlier. The
lowest rates in the 2008 survey were in
Victoria (0.3%), Kelowna (0.3%), Sudbury
(0.7%), Vancouver (0.9%), Saskatoon
(0.9%) and Winnipeg (1%). By comparison,
high vacancy rates were in places like
Charlottetown (5.3%) and Moncton (6.1%)
where mining, oil, and car making don't
take place.
Falling vacancies can indicate many
things, but in the present market, the fact it's
getting harder to find a house or apartment
to rent implies that many people are waiting
for prices to drop or are unable to come up
with the downpayment for homes of their
own. This is cautious behaviour, an indication
that the rush to buy is ebbing. The feeling
that if one does not buy now, a home
will be unattainable is waning, replaced by
hesitation to take on debt for a home that
could fall in price.
At the same time that vacancy rates drop
in Ontario and in western provinces, prices
of houses and condos show signs of cooling.
"The much-anticipated housing market
slowdown in Canada has arrived," said a
May 2008 report from the Royal Bank's
Economics Department. In April 2008,
resale activity of existing homes dropped
6% compared to the same period a year earlier.
Listing of homes for sale rose 18% year
over year and price gains rose 3% compared
to 10% a year earlier.
Speculative listings moved far ahead of
prices. For example, in
Saskatoon, listings
rose 121% in April
2008 compared to
April 2007. That
amount of rise in
offerings suggests that
owners of homes were
anxious to score capital
gains. Saskatchewan has had increased
activity in potash and uranium mining and
oil production. But commodity prices have
dropped drastically since May 2008 and,
with them, home prices in the west.
Nationally, home construction has
declined. Canada Mortgage and Housing
Corp. said 186,500 new homes were built in
July 2008, a 13.6% drop from June.
Buyers are taking a wait-and-see attitude.
Falling prices offer them an incentive to be
patient.
Interest rates are still in a low range. Open
mortgages with rates around 4% to 4.75%
can be found. But lenders have tightened
lending standards in the wake of the U.S.-
created credit crisis and money is harder to
get. Zero-down mortgages have been terminated
by CMHC, a factor that reduces the
numbers of people who can bid for homes.
Nationally, housing is shifting from a seller's
market, in which potential buyers have
had to bid over offering prices, to one in
which it will be possible to get a home by
bidding under the asking prices. For buyers
and sellers switching homes in the same
area, trend changes should not matter much.
For those buyers entering formerly hot markets
like Saskatoon, Regina, Victoria,
Vancouver, Edmonton and Calgary, there is
potential to score a bargain.
For buyers who can afford to wait or who,
for lack of downpayment, must wait, the
question is: when will the market bottom
out? Canada has no crisis like that in the
U.S., says the Royal Bank's economics
department, but caution in the face of
tougher times is understandable and evident.
Timing markets is tough
to do well. With the
economies of Canada, the
U.S., the European Union,
and most emerging markets
in difficulty, asset prices are
headed lower. In this time
of troubles, a house still
represents a solid asset. For anyone who
wants to keep a house for years or decades,
the time is ripe, or at least near ripe, for a
good purchase. For sellers, things could get
worse. For folks thinking of renting until the
economy improves, there are transitional
costs, such as moving expenses, breakage
and even the bother of changing addresses.
The Canadian housing market is shifting
to a buyer's phase. Timing the bottom is
tough, but a couple of years from now, it
may seem to have been a fine moment to
have bought.
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