In June, 8.7% more homes were sold than in May. It’s the fifth straight month of increases — a 17.9% increase over June 2008.

“This rebound reflects the releasing of a pent-up demand by buyers who moved to the sidelines towards the end of last year,” said CREA chief economist Gregory Klump.

“Now there are signs the worst of the recession may be behind us, those people are emerging.”

The bounce back was strongest in British Columbia, where 39.8% more homes were sold in June this over the same month last year. According to the CREA report, Ontario was up 15.7%, Quebec 9.8%, Alberta 22.2%, Saskatchewan 25.2% and Manitoba 0.2%.

This surge in home buying came despite a decision by Canada’s five big banks last month to raise five-year fixed mortgage rates 40 basis points from 5.45% to 5.85%.

The decision was made despite the Bank of Canada’s efforts to keep borrowing low by pledging to hold interest rates at the historic low of 0.25% until the middle of 2010.

Mary Webb, a senior economist with Scotiabank, says the low long-term interest rates in the spring were a reflection of a global economy with almost no signs of growth and that was bound to change.

“Now we’re looking for a recovery, and not just in Canada but globally, and we’re seeing it already in China and we expect growth to strengthen later this year and early next,” Webb said.

With more people borrowing, banks are being forced to pay more to borrow the money they lend to home buyers, and that drives up long-term interest rates, she said.

http://www.torontosun.com/news/canada/2009/07/15/10136046-sun.html

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Sales rose 8.7 percent to 41,304 homes from the previous month on a seasonally adjusted basis, the Canadian Real Estate Association said today in a statement from Ottawa. Average home prices rose 3.6 percent from a year earlier and the inventory of unsold homes fell to its lowest since August 2007.

Recent data on Canada’s housing market suggest the Bank of Canada’s efforts to stimulate spending with interest rate cuts are helping fuel demand for homes and may be reversing a slump in home construction. The Bank of Canada, which forecast that housing will shed 1.1 percentage points from growth in 2009, has cut its benchmark lending rate to a record 0.25 percent.

“Obviously there is one segment of society that doesn’t believe this will be a lengthy downturn,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto.

New home sales jumped a record 32 percent during the second quarter to 114,173 units, the realtor group said. The number of months needed to sell current inventories fell to 4.2 in June, the lowest level in more than two years.

Agents and Brokers

Output of real estate agents and brokers was up 8.2 percent in April, Statistics Canada said June 30. Canada Mortgage and Housing Corp. said July 9 that new home construction rose for a second month in June, while the total value of permits issued by municipalities jumped 15 percent in May.

One explanation for the pick-up in the real estate market, Porter said, may be that the decline earlier this year was “extreme” and created pent-up demand for homes. Existing home sales fell in January to their lowest since 2000.

“I can’t help but wonder whether these gains are sustainable,” Porter said.

The country also may be benefiting from a financial system that has largely escaped bad-asset problems plaguing other countries.

“The positive impact of low interest rates on mortgage demand is clearly much more powerful in Canada than in the U.S.,” Derek Holt, an economist at Scotia Capital in Toronto, said in a note to investors.

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RBC Economics says home affordability recorded some of the biggest quarterly improvements on record in the first quarter. Senior economist Robert Hogue says with market turmoil decreasing and credit flows increasing, resale activity has “rallied impressively.”

He says what is most impressive is how widespread this rebound has been, “with all major cities in Canada experiencing a revival.”

Declining costs of home ownership during the last year were driven by significant cuts in mortgage rates.

In the first quarter, says RBC, monthly payments on a typical detached bungalow fell by close to 17 per cent from a year earlier.

RBC says the proportion of pre-tax household income needed to own a home improved across all housing segments.

It says the benchmark detached bungalow moved to 39.4 per cent, the standard townhouse to 31.9 per cent, the standard condo to 27.1 per cent and the standard two-storey home to 44.7 per cent respectively.

RBC’s affordability measure for detached bungalows in the largest cities were 62.6 per cent in Vancouver, 45.9 per cent in Toronto, 39.1 per cent in Ottawa, 36.5 per cent in Montreal and 35.1 pr cent in Calgary.

“Housing markets generally appear to be on the mend in Canada but the road to full recovery still has obstacles,” added Hogue.

He added that further improvement in affordability will depend on greater gains in family income.

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“Declining costs of home ownership during the last year were driven by significant cuts in mortgage rates along with the federal government taking an active role in supporting the mortgage securities market,” RBC said. “In the first quarter, monthly payments on a typical detached bungalow in Canada had decreased by close to 17 per cent from a year earlier.”

The average cost to own a bungalow in this year’s first quarter was $1,350 a month, down from $1,520 in 2008’s fourth quarter and $1,620 in last year’s first quarter.

RBC’s affordability index — the percentage of pre-tax monthly household income needed to maintain a home, including mortgage payments, utilities and property taxes — improved across all housing segments in Canada.

The average affordability for a bungalow in the first quarter was 39.4 per cent, down four points from 2008’s fourth quarter. It was 44.7 per cent for a standard two-storey (down five points), and 27.1 per cent for a condominium (down 2.8 points).

The average cost of maintaining a detached bungalow in Vancouver was 62.6 per cent of household income during the first quarter, while in Toronto it was 45.9 per cent, RBC said. Ottawa affordability was 39.1 per cent, Montreal 36.5 per cent, Calgary 35.1 per cent, and Edmonton 34 per cent.

From a provincial standpoint, RBC said housing affordability in British Columbia saw its biggest improvements since 1991, with the percentage of income required for various housing types dropping between 3.4 and 7.4 percentage points during the quarter. In Ontario, RBC said housing sales activity has returned to levels seen in mid-2008, largely as a result of improved affordability.

“With the turmoil in financial markets partially subsiding and the flow of credit increasing, home resale activity has rallied impressively since the late winter,” said Robert Hogue, RBC’s senior economist. “What’s most impressive is how widespread this rebound has been, with all major cities in Canada experiencing a revival.

“”With property values stabilizing and the effect of the steep drop in mortgage rates likely behind us, further improvement in affordability will depend on greater gains in family income,” Hogue added. “Those gains will be dictated by the speed of the economic recovery expected during the second half of this year.”

The RBC’s assessment follows a separate report this week from real estate agency Royal LePage that said improved housing-market conditions in this year’s second quarter points to a better overall performance in 2009 than previously anticipated.

Also, a number of local markets saw sharp spikes in sales last month, including Toronto, Ottawa and Edmonton, where new sales records were set for June.

Percentage of gross income required to own a standard bungalow in first quarter of 2009 (change from previous quarter):

British Columbia 59.0 (-6.0)

Alberta 33.2 (-4.6)

Saskatchewan 42.0 (-3.3)

Manitoba 35.3 (-2.9)

Ontario 38.6 (-4.2)

Quebec 32.3 (-2.5)

Atlantic 31.3 (-2.9)

Canada 39.4 (-4.0)

Source: RBC Economics

http://www.canada.com/Business/Home+ownership+getting+more+affordable/1771375/story.html

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