Canadian home prices drop again

By Josh Rubin | Wed Dec 29 2010

Canadian housing prices dropped in October for the second straight month, but experts say it’s not the start of a precipitous decline like the plunges seen in the United States.

The Teranet-National Bank Composite House Price Index found that prices dropped by 0.4 per cent nationally, pushed by declines in Calgary (1.0 per cent) and Toronto (0.9 per cent).

A decline in September was the first drop after 16 straight months of increases. Since October 2009, national house prices are still up an average of 6 per cent.

National Bank senior economist Marc Pinsonneault, who conducted the study, said he believes prices could drop by another 5 per cent over the next two years, but said that number should be kept in perspective.

“That would mean prices would still be at their pre-recession peak, so this isn’t the start of something terrible,” said Pinsonneault. “We’re expecting to see house sale prices come more in line with rental prices and incomes, and that’s something that’s beneficial.”

In the U.S., housing prices have dropped more than 24 per cent, according to a report Wednesday. In some cities, the fall has been even more precipitous: In Las Vegas, house prices have dropped 51 per cent in the last three years, according to the S&P Case-Schiller Home Price Index.

Pinsonneault noted that another key measure of the housing market still very healthy in Canada compared to the U.S.

In the U.S., between 5 and 6 per cent of mortgages are 90 days in arrears. Here, that figure is more like 0.5 per cent, according to Pinsonneault.

“When everything is going really well, it might be 0.4 per cent. So 0.5 per cent really isn’t that bad at all,” he said.

Pinsonneault also wasn’t too concerned about the drops in Calgary and Toronto, saying they are not big signs of a local economic slide.

“The markets were maybe a bit more overheated in Calgary and Toronto. In Calgary with the oil sands, there was some speculation in the market. When we came out of the recession, it was more noticeable in Toronto than in other housing markets. But I wouldn’t say it was a bubble,” said Pinsonneault.

In central Toronto, Kevin Somers of Royal Lepage said he has noticed a bit of a softening in the market, but nothing particularly drastic.

“We’ve gone from a situation where there might have been 10 bidders to now there are 4 or 5,” said Somers, a broker who is also Royal Lepage’s area manager for central Toronto.

“The picture has been pretty stable. Shy of any significant changes in the economy or interest rates, I don’t really see things changing all that much.”

In the U.S., many homeowners in the worst-hit cities are “below water,” meaning they owe more on their mortgage than their house is worth. Somers says that is not the case here.

“There are a few one-off instances of people being under water in Toronto, but it’s not any trend at all,” said Somers, adding that choosing the right house in the first place is always good insurance against a slide in the market.

“If it’s a desirable property in a good location, it’s still always going to sell,” said Somers.