Canada’s Home Prices are on the Decline

There are many reasons why steadily advancing home prices are good for the economy. They add to individual and family wealth and contribute to confidence. They can make it easier to borrow money based on home equity in order to spend on a variety of other things, ranging from everyday onsumer goods to home reno products and from bigger ticket items such as new car purchases to a second home in cottage country.

A meltdown in home prices can lead to the kinds of mortgage foreclosure problems that are epidemic in the United States and cause greatly reduced expectations for overall economic performance. Canadians have much larger equity stakes in their homes than Americans have recently recorded, reducing the risk of similar mortgage foreclosure problems in this country. Nevertheless, falling home prices can have a depressing effect on growth.

A Sad Irony for Taxpayers

There is a particular irony for homeowners with respect to their property taxes. Most municipalities across Canada have moved to “fair market assessment” for property valuation in tax calculations. As a result, home owners have received notices from property assessors of large increases in the value of their homes. In many cases, these are to be phased in over several years.

Therefore, property taxes are being based on estimated increases in home values at exactly the time when real market conditions point to prices stabilizing or declining. This adds an extra burden on beleaguered homeowners and consumers at a time when the economy is struggling.

Looking at the Two Major Measures

The two major and most-accessible measures of home prices in Canada come from Statistics Canada and the Canadian Real Estate Association (CREA). The former is a measure of new home prices and the latter looks at the average sales price of existing homes.

Both measures record considerable moderation of late. The following records the year-over-year September 2008 results, moving across the country from east to west. There are some differences between the series with respect to geographic regions covered.

It should be remembered that September was before the bulk of the decline in stock market prices, which has had a further negative effect on confidence and individuals’ willingness to make major spending commitments, such as on a home.

St. John’s Newfoundland, one of the bright spots in the country: +22.7% for new housing. For existing housing, the measure is for the whole province and stood at +17.5%.

Halifax, Nova Scotia: +7.0% new and +2.4% existing.

Saint John, New Brunswick: +2.5% new and +6.9% existing.

Montréal: +4.8% new. Quebec city: +6.1% new. The measure for existing home sales is province-wide and stood at +3.5%.

Ottawa, Ontario: +4.3% new and +2.1% existing.

Toronto, Ontario: +3.0% new and -10.5% existing.

Hamilton, Ontario: +2.8% new and -8.7% existing.

Windsor, Ontario has finally stabilized with respect to new housing, at +1.0%.

Winnipeg, Manitoba: +6.2% new.

Regina, Saskatchewan, the other still-strong market: +22.7% new and +22.5% existing.

Saskatoon, Saskatchewan: +5.5% new and +11.6% existing.

Calgary, Alberta: -1.2% new and -5.6% existing.

Edmonton, Alberta: -5.8% new and -8.6% existing.

Vancouver, B.C.: +1.4% new and -5.7% existing.

Victoria, B.C.: +0.2% new and +0.3% existing.

Nation-wide: +2.1% new and -5.4% existing.

As would be expected, there is a strong degree of consistency between the two sets of numbers. With a few exceptions, there is disappointment with respect to what is happening to property values. Nevertheless, real estate is holding up as a much better investment to this point in the downturn versus equities.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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