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Housing markets mix of contradictions

Riding the Skytrain in Vancouver always brings back a flood of memories to me. One of these surrounds a small mossy home, derelict, and in a less-than-desirable section of Whalley (one of the tougher neighbourhoods in Surrey).
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Riding the Skytrain in Vancouver always brings back a flood of memories to me. One of these surrounds a small mossy home, derelict, and in a less-than-desirable section of Whalley (one of the tougher neighbourhoods in Surrey).

The Skytrain was still a dream back when I was in college. The provincial election was in the air, and, as always, fraught with hostility between left and right. The proposed Skytrain route was a key point of debate in the campaign and I happened to frequent the thrift stores in the same part of Whalley where they were planning to put the train.

And there, not far from a friend's place, was a falling down old house, uninhabitable. It had been the site of a grizzly drug-induced murder that had also made the news and it was boarded up.

Real estate was depressed - that used to happen occasionally in Vancouver area. As a student, I couldn't even fathom the thought of buying a piece of property, given that a pair of jeans was well out of reach. But I knew if I could grab it, I would probably make good on it someday. It was something approaching worthless at that moment. Not really, but very cheap. I just looked up the assessed value for this year, and it is now worth roughly $1 million.

With the right real estate, a person could build a real estate.

Courtesy of RBC Economics, here is a view of the current housing trends in Canada's two hottest markets, Toronto and Vancouver. To some extent, Lower Mainland refugees feed in to our market as well, adding salience to the discussion.

The housing market picture is getting clearer but not simpler across Canada. Local real estate board results published in recent days show very contrasting paths. There was evidence that the Greater Toronto Area market is turning a corner with activity rebounding strongly in April and benchmark prices accelerating for a second-straight month. Regina also saw a big pop in activity though prices continued to decline.

On the other hand, the Vancouver area market gave no hint that it was coming out of its slump and conditions were still definitely soft in Victoria. Resales and prices fell further in both markets last month. And despite some improvement, weak demand-supply conditions still apply downward pressure on prices in Calgary and Edmonton. Ottawa continued to stand out as one of Canada's stronger markets although very tight for-sale inventory was a limiting factor for activity in April. This could well be the new normal in the near term.

In the end, Toronto home resales did bounce back from February's weather-struck levels. It's just that it occurred in April, not March. The Toronto Real Estate Association today said that April resales surged by more than 11 per cent m/m (on a preliminary seasonally adjusted basis). This fully reversed the sharp nine per cent drop that occurred in February and returned the market to late-2018 levels - which were admittedly soft but not dangerously so.

As we suspected, the muted market response in March was more of a supply story than a demand story. A decline in new listings in March had a restraining effect on market activity. A material increase in new listings in April (up almost 15 per cent m/m by our own calculations) pulled many buyers into play - a sign that pent-up demand is plentiful. Sales of single-detached homes grew the fastest among all housing categories (on a year-over-year basis), which was a surprise.

Properties with lower price points (typically seen in the condo segment) have been the most sought-after in the past couple of year. It's too early to tell whether this is a sign of improving affordability for single-detached homes. Overall benchmark prices accelerated for the second-straight month, rising from an increase of 2.6 per cent y/y in March to 3.2 per cent in April.

Generally balanced demand-supply conditions are setting the stage for further modest increases in the near term. Not so in the Vancouver area. The Real Estate Board of Greater Vancouver's April market report released last week showed a persistent imbalance between demand and supply, giving buyers substantial swaying power over prices. The benchmark price fell deeper with the pace of decline barely letting up. The benchmark is now down 8.7 per cent since the peak in June 2018. Home sales remained d e-pressed (down 29 per cent y/y) though they likely picked up slightly (by two per cent by our calculations) from March on a seasonally-adjusted basis.

This could be a tentative sign of a cyclical bottom - or maybe not given the decidedly foul mood that continues to prevail in the market. Vancouver buyers and sellers are still digesting the many housing policy changes at all levels of government, and it may take still longer for the market to turn around.

Mark Ryan is an investment advisor with RBC Dominion Securities Inc. (Member-Canadian Investor Protection Fund), and these are his views and not those of RBC Dominion Securities. This article is for information purposes only. Please consult with a professional advisor before taking any action based on this information.