As housing market slows, industry scrambles to paint positive picture

Garry Marr | Oct 3, 2012 6:42 PM ET | Last Updated: Oct 4, 2012 12:49 PM ET
More from Garry Marr | @DustyWallet

Organized real estate is unable, it seems, to admit the glory days may be behind it.

Sales plummet in major markets and the industry comes up with a new explanation for the decline, draping its comments with a sense that everything is just fine. The excuses are piling up.

This month’s gem comes from the Toronto Real Estate Board: It complained September didn’t have enough working days — too many weekends.

I always thought people bought homes on weekends, but it seems the transactions are registered during the week.


“The number of transactions was down 21% in comparison to September 2011,” said TREB in a release. “However, it is important to note that there were two fewer working days in September 2012.”

This logic has produced a new measure from TREB: Sales were down only 12.5% — not the actual 21% — from a year ago on a “working-day basis.”

This will only make the conspiratorially minded angrier — most of them convinced that the so-called benchmark indices produced by organized real estate are covering up a major decline.

Vancouver’s real estate board likes to tout what it calls the MLS HPI (home price index) composite benchmark price for all residential properties. It was down 0.8% to $606,100 in September from a year ago and off 2.3% over the past three months.

Doesn’t sound too bad. But when you pull out actual sales data, you find year-over-year prices in August in Canada’s most expensive housing market were off 6.9%. For the first two-thirds of the year, prices fell 7.3%. The decline is happening; it’s the severity that seems to be under dispute.

Ignore what they are saying. Sales are plummeting in Toronto and Vancouver

The industry will tell you the benchmark is a more realistic measure because it is not skewed by, say, a sudden swing in sales in one segment of the market.

“The HPI takes into consideration what averages and medians do not — items such as lot size, age, number of rooms, etc. These features become the composite of the ‘typical house’ in a given area,” says Vancouver’s board on its website.

David Madani, an economist at Capital Economics, chuckles at some of the language used in real estate circles.


“It’s a bit lame,” says the notorious bear on the housing market. 
“The answer is to ignore what they are saying. Sales are plummeting in Toronto and Vancouver. I say get used to this because this is going to go on for a couple of years. Our view is a 25% price decline.”

The normal course in any cycle is for sales to correct first and then for prices to follow, he adds. “There is a time lag, that’s what happened in the United States. There’s a time lag as sellers hold on, refusing to drop their asking price, eventually they acknowledge the market has shifted under them.”

Real estate’s other complaint these days is that Ottawa’s mortgage rules, introduced July 9, savaged the market. One of the main changes was the dropping of amortization lengths from 30 years to 25 years, which has the impact of handing the consumer a larger monthly payment.

All of [the rule changes] have layered on top of each other. It’s a cash flow crunch. I think the reality is real estate is slowing down

Vince Gaetano, a principal at says a tightening of lending requirements which affected the self-employed might be the bigger factor. But still, he wonders whether the housing market just needs a break.

“I think the market is tired,” says Mr. Gaetano, adding the impact of amortization changes is probably cumulative. The maximum amortization length for a government-backed insured mortgage has declined from 40 years in 2008.

“Every five-year drop represented a 1% interest rate hike in cash flow,” says Mr. Gaetano. “All of [the rule changes] have layered on top of each other. It’s a cash flow crunch. I think the reality is real estate is slowing down.”

Even Phil Soper, chief executive of Royal LePage Real Estate Services Inc., is feeling the heat to promote real estate after his company’s release yesterday suggested a decline is to be expected after a long expansion. “I got a hate email from someone in the industry saying ‘how could you talk about negative things in the housing industry.’ Well it’s a cyclical industry,” says Mr. Soper.

It’s not like his release didn’t have any positive spin: “The dream of home ownership is very much alive among young Canadians,” the CEO said in his release.

Maybe that’s not good enough. Perhaps no U.S. style housing nightmare is coming but the dream of home ownership is fading for some Canadians.

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