All developers are scrambling and offering major discounts on pre-sale homes giving up homes for up to 40% off their original asking price. And many first time home buyers are jumping at the chance and lining up early for their spot at making a bid for these drastically reduced luxury condos.
Click to PlayIf you consider the battles and bid wars that many home buyers had to endure in the previous years, these offerings are their golden ticket to affordable housing.
This scenario is happening all over N. America and is even more apparent in the US. Sellers are using tactical advantages and mind games to lure more buyers into our currently depressed market by listing housing prices for well below market value to trigger bidding wars. And it's working.
But should buyers be jumping the gun? Let's take a look at both the Canadian and US housing market.
According to TD Economics, Canadian house prices have further to fall, while overbuilding in the residential market will prevent the sector from making a quick recovery from the current downturn in sales, prices and construction.
They also expect the average Canadian house price to fall to about $246,000 in 2009, down 24% from the peak of $324,000 in 2007. As of February, the average nation-wide house price stood at $282,000, down 13% from its peak. Based on those figures alone, it would appear that we still have another 11% decline to go.
The report also found house prices had been overshooting their fundamental value by about 9% since 2005 as speculation drove up prices and encouraged overbuilding, which I am sure every Canadian witnessed or participated in.
TD said Calgary and Edmonton had accumulated "worrisome" inventories of unsold single family homes, while the overhang of supply in Saskatoon's was at a historical high. Montreal also had a growing inventory of unsold condos and apartments.
Although Toronto and Vancouver have so far avoided a major oversupply in inventories, TD said the large number of condos under construction in both cities raised the possibility of mounting oversupply this year.
As housing prices correct, the excess supply of housing in the market will continue to weigh on the sector throughout 2009.
However, Canada should avoid a housing crash like the US because the oversupply of housing is much smaller.
TD estimates the overhang of residential homes in the Canadian market is equal to about three month's supply, compared to about 10 months in the United States - where conditions are much worse and likely to fall even further.
In RealtyTrac's US Foreclosure Market Report™ for Q1 of 2009, an astonishing one in every 159 U.S. housing units received a foreclosure filing during the quarter. Foreclosure filings were reported on 341,180 properties in March, a 17% increase from the previous month and a 46% increase from Mar 2008.
According to Moody's Economy.com, home value declines in Los Angeles for example, still have a long way to go. Based on historical balances of employment, housing sales, income, lending availability, foreclosures and vacancy rates, all dating back to 1982, home prices in the Los Angeles metro area still have 29% further to fall.
Total foreclosures are likely to be significantly higher in 2009 than they were in 2008, even with the mitigating effects of the Obama housing plan in the US. We also have to keep in mind that new home developments also compete with existing houses, whose inventories are still at very high levels.
Major lenders like Fannie Mae, Freddie Mac and JP Morgan have just recently lifted their foreclosure moratoriums which could signal the swelling of more cheap foreclosed homes this spring and summer.
The best real estate deals, it seems, are yet to come.
So take your time. This recession isn't going away tomorrow.
Best regards,
Ivan Lo
Equedia Network Corporation
www.equedia.com