Yes markets do work. An increase in supply usually puts downward pressure on prices, especially Real Estate. The Canadian Real Estate association said that sales in May pulled back 9.5% from April and prices in May 2010 were up 8.5% from May 2009.As reported in my previous blogs, sales and prices have been on a tear since April of 2009 and had many concerned about a ” Real Estate Bubble” in the near future. However,as more sellers wanted to take advantage of the hot market ,inventory levels soared. At the same time tighter mortgage regulations and the threat of higher rates caused a slight dip in sales from April.  As a result at the end of May there was a 6.1 monthe supply of residential homes in Canada. Also in the major markets of Toronto and Vancouver prices have risen so high that many are now priced out of the market, regardless of the very low interest rates.
 In our local Peterborough Real Estate Market, how do we compare to the National numbers.

 Number of Listings  2010  # 2265            2009  # 1905

 Sales For May       2010  # 236             2009  # 247

 Average Sale Price  2010  $ 241,663         2009  $ 227,319 ( An Increase of 6.4% )

 As shown there has been an increase in listings from about 1450 in February to 2265 at the end of May and prices up 6.4% since May 2009, our local Peterborough Real Estate Market is pretty much following the national trends. I had earlier stated in my blogs ” Real Estate Bubbles ” that I did not beleive that we were going to have a bubble and the Market has pretty much proven me correct, at least this time!

Thanks for all your comments on previous blogs and I have finally got time to write again. Since my last post there has been alot of turmoil in the financial markets and a real dramatic correction in the world stock markets.
 Lets get back to Real Estate, Our local market had a strong sales month again and a lot of new listings ( now over 2000 from a low in February of some 1400 ). Sale prices continue to rise and according to sales data from the Canadian Real Estate Association the average home price has gained 23% from January 2009 until April 2010 and is now 7% over pre recession prices of early 2008.
 This leads to a survey from the economists at C.I.B.C. to state that prices are 14% over fair value and to a price correction in the next two years of 5% to 10%. The report states that 20% of homes in B.C. are overvalued and in Ontario 11% are overvalued. However, on closer examination there are already stabilizing forces at work. Note the number of new listings in our Peterborough On. market and in the Canadian market. The Bank of Canada has pretty much decided on a .25% increase in the Bank Rate if not in June then probably July. This will increase the Variable rate mortgage for the first time in a year and fall in line with the increases in the fixed rates ( 5 year ) which have had as much as a 1% increase in the last few months.The Bank of Commerce economists and the economists from Central Mortgage and Housing seem to agree that there will be a modest correction in the next few years. For example C.M.H.C. expects sales of existing home to go from 497,000 units in 2010 to 473,000 in 2011 with only a modest rise in prices in 2011.
 I think the crises in Europe will cause some deflation and not inflation as governments around the world are goin to start to cut spending and are forced to moderate the increase in stimulous.This will keep the Bank of Canada from having to increase the Bank rate by several percentage points.( 3 to 5) I don’t think we will see the abnormally high rates that caused the property and housing crash of 1991.
 I still recommend that as I stated in previous blogs that if you have lots of equity or have the income to qualify for a variable rate mortgage, stay with it and take advantage if these low rates to pay off the debt.
 As for commercial loans and mortgages there could be stiffening credit restrictions, for now in Canada the picture has not changed and for the smaller investor looking at multifamily or modest commercial investments credit is still available.

As the old saying goes “Spring has sprung, the grass has riz, I wonder were the buyers is” Well it appears that they are out buying Real Estate. According to the press releases today Real Estate sales for March continue to be very strong, with sales in the GTA up 70% compared to last year and prices up 20% to $ 434,696. Even Montreal with its realative cheap housing stock, prices were up 9% to $ 245,000.
 In our local market, Peterborough Real Estate sales are also very strong and prices continue to increase. One reason is supply. Last year at the end of the first quarter, we had a 5.1 month supply of listings, really a balanced market. this year at the end of the quarter we had a 3.1 month supply of listings, truly a seller’s market. Looking in more detail to the report there is a very interesting statistic, listings above $ 275,000 last year there was 17.7 month supply! this year there still is a 6.3 month supply which is more of a buyer’s market. This could mean there is some buyer resistance to the higher price or that the buyers simply do not qualify for the higher mortgage amounts. However, in March more sellers did enter the market as there were 778 new listings a 21% increase over March of 2009 in the Peterborough, On. market.
 Another statistic that may be a preview of the fall market is the one released on new building permits. Stats Canada said that in February residential construction intentions fell 7.5% dragged down by a 52.5% drop in the value of multiple dwelling permits in Ontario. Could it be that the bloom is off the condo boom, or are developers more cautious with the changes to CMHC insured mortgages for investment properties effective April 19th. Only time will tell!

As I have written in my previous blogs ” Real Estate Bubble 1 to 7 ” that in my view that there was no real threat to a Real Estate bubble in Canada at least not like in the U.S. It was published today that according to the Teranet-National Bank composite index that although house prices increased in January the increase was the lowest since the bottom of the market a year ago in 2009. There are hot spots in pricing such as the condo market in Toronto, however, across the  country price increases are levelling off.
 Over the past two days the large 6 banks have all announced increases in their fixed term mortgages, the 5 year rate has increased .6% to 5.85% the other fixed rates also increased, however, the variable rate has remained the same. The increase in the fixed rate is due to the upward pressure on the bond market. Economist feel that the driving force behind the bond market is the idea that the Bank of Canada will need to increase interest rates sooner than later. Not only has the residential real estate market recovered, but other parts of the economy are starting to improve thus putting pressure on an increase in the rate of inflation. When the Bank of Canada increases the prime Bank Rate, then variable mortgage rates will also go up.
 Gregory Klump the chief economist of the Canadian Real Estate Association said although interest rates are rising they are still historically low. Does anyone remember the early 80’s and 5 year rates at 18% and more. Ththese higher rates will have an additional effect of cooling the market, and with the changes in CMHC downpayment qualifictions for investmproperties coming April 19th and the HST on July 1st, prices should level off.
 Are we in for a big price crash, similar to the U.S. housing mess, I do not believe we are for the near future, but I will give my reasons for my point of view in my next blog.

My associate at Century 21 United Inc, Marg Strano, Sales Representative has written just a delightfull article about Easter and her memories of this special time as a child. I encourage you to go to her site ” Www. Century21.ca/MargStrano and enjoy and Happy Easter and Passover.