Thursday, April 17, 2008

I was wrong: The Turn is Here

WOW!! The March data from CREA was off the charts horrible...

I was wrong when I wrote this on April 8:

" Canada's turn may be coming. Clearly, the turn in Canada is not here as of March 2008. However, this does not mean that the turn isn't coming."

snowy February numbers were not good, but they were not disastrous (a la Britain's March). I thought that March would show some deterioration over the Feb numbers, but not to this level. I wrote that line attempting to take the focus away from a myopic short term view and look to the future. Well, the future is here...

The average selling price of existing homes in March rose by only 4% YoY (down huge from 6.2% YoY in February and 11% for 2007). YoY sales number for March dropped almost 19%!!

That is a huge slowdown that has brought price increases down near to the CPI rate. This means that a house is showing almost no appreciation in real terms.

CREA had projected a national 2008 price increase of 5.5% and a slight decrease in sales to 512K (from 520K in 2007, a drop of 1.6%). Those numbers are fantasy now based on the Feb & March data.

Here is a summary of the CREA numbers (gathered from press release, articles):

2008 Proj 2008 Q1 Feb 08 Mar 08

Proj Act Act Act

Price 5.5% 5.5% 6.2% 4.0%
Sales -1.5% -13.0% -10.0% -18.7%

In the G&M today:

“Canada's six-year housing market boom is officially over. Aside from a few choice prairie locales, sales are melting faster than this year's snowpack,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said in a research note.

New listings (inventory) were up huge as well. March sales fell by 40% in Calgary, 34% in Edmonton and 22% in Toronto

In the G&M, it points out that Porter and TD continue to expect "moderate home-price gains" for the year. Do they really believe this or are they speaking for their bosses who hope to avoid a US style crash? Ted Carmichael of JPMorgan talks about price declines in the next 12 to 18 months in the National Post. JPM has a smaller presence in Canada, so maybe he is more free to speak his mind?

The turn is here. The chain of events that I put out last week may need revision, but I'll wait until we get further confirmation with the April numbers, as it is dangerous to rely too much on one data point.

I am not 100% sure about this (I will need to research further) but it appears that the British and Canadian housing markets are turning faster than the US market did in 2005/06. Moderate home price gains are optimistic and would require a immediate stabilization at March levels. The employment picture has slowed down big-time in recent weeks, the credit crunch effects are only beginning to be felt and the inventory has only started to build.

I will venture a guesstimate that the national home price "increase" will be close to zero sometime this summer. And maybe then the CREA will blame the heat...

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