Sellers are facing more empty open houses and fewer bids on their homes, but experts say buyers shouldn’t expect to see a retreat from record-high home prices when July housing data is released Monday.
Home sales have fallen 25 per cent since reaching a peak at the beginning of the year as demand slows and more houses come onto the market.
But it will take much longer for sky-high home prices to fall and the market to enter buyer-friendly territory. And history is on the side of the seller.
“Over time, if you were to look at the last 40 years, it’s much more common to see sellers’ markets than buyers’ markets,” said Phil Soper, president of Royal LePage.
“It comes down to the different psychology that exists between buyers and sellers. Buyers are very quick to adjust to a down market and sellers are very slow to adjust to a down market. Sellers stubbornly hold onto their perception of what their home is worth, whereas buyers turn on a dime.”
Soper expects to see sales decline dramatically from last July’s near-record activity, but predicts there will be little change in home prices when the Canadian Real Estate Association releases its monthly sales figures Monday.
Seasonally-adjusted home sales fell 8.2 per cent in June from the month before and shrunk 19.7 per cent compared to June 2009. However, the average Canadian home price sat at $342,662 compared to $326,689 in 2009.
“You would think prices would come down more rapidly given the drop in sales,” said Sal Guatieri, senior economist with BMO Capital Markets.
Guatieri expects to see as much as a 35 per cent year-over-year drop in July home sales. He projects monthly sales figures will be around 32,600 homes, which would represent the weakest July since 2001. However, he says price increases will weaken just slightly, and only because they were so high last year.
“It’s only in a so-called buyers’ market, where there are lot more listings on the market than sales, that buyers have some bargaining power and sellers are more willing to ease up on price, that we would see prices actually falling,” he said.
But Mark Weisleder, a real estate author and lawyer, says real estate agents are beginning to notice some discernable changes as the Canadian housing market cools off.
Buyers are not as rushed to make an offer and are becoming more aggressive in negotiations, while sellers are beginning to accept less than asking price for homes as interest wanes.
“(Agents) are going to open houses, sitting there for three hours, and two people come in at the most. Right now there doesn’t seem to be that level of stampede mentality to go see a house,” Weisleder said.
“I do believe there is a disconnect between some of the data that people are throwing out there every day in the numbers, and slowly you’re going to see prices come down.”
Many buyers hurried to close in late 2009 and the first half of this year ahead of the new harmonized sales tax in B.C. and Ontario, new mortgage requirements, and to take advantage of record-low interest rates.
That pulled ahead sales that might otherwise have occurred in the second half of 2010, increasing demand and leading to bidding wars in which buyers were willing to overpay to secure a property.
As home prices crept higher and consumers became more confident about an economic recovery, more sellers put their homes on the market, which increased inventory.
Now fewer buyers are shopping for homes just as more listings flood onto the market. That has shifted the housing balance away from the seller-friendly market into neutral territory, but it’s still shy of a buyers’ market.
Weisleder says the market isn’t poised to enter buyers’ territory any time soon, as historically low interest rates and a stable economy continue to make buying a Canadian home attractive.
“Because of the interest rates being so cheap to borrow money, prices may not fall too much because people can still afford (to borrow) probably more than they should,” he said.
“But it doesn’t mean the house is worth that much,” he said, adding that if rates go up it could be catastrophic for homeowners who have taken on more debt than they will be able to afford.
Meanwhile, sellers have become accustomed to fetching high home prices and want to hang onto their properties for as long as it takes to get those prices — although that window has stretched from a couple of weeks to a few months.
“No seller wants to jump the gun, so a lot of people are sitting on the fence and trying to hold on,” Weisleder said. “A lot of people are very upset they didn’t sell six months ago.”