What direction are home prices headed? Depends on who you ask

It has become the new mantra of real estate watchers — there’s no crash coming, just a soft landing and an ever-so-minor correction in prices.

Speaking to a RBC banking conference in Toronto on Tuesday, the country’s top bankers said they don’t expect a dramatic downturn like one experienced by the United States about five years ago.

The message came through loud and clear from three separate sources Tuesday: a Bank of Montreal roundtable of industry players, a new forecast from one of the country’s largest real estate companies and the head of the country’s largest bank.

But nobody can escape the fact sales are falling fast in the housing sector. In Canada’s most expensive city for housing, the Real Estate Board of Greater Vancouver said in January total sales in 201 were off 22.7% from a year earlier. The decline in Toronto was not as steep but sales were off about 3.8% in 2012 compared to 2011, with the trend picking up steam later in the year.

Prices have remained relatively firm in most parts of the country. Toronto prices ticked up 7% over the past year to an average of $497,298. In Greater Vancouver, the Board’s MLS Home Price Index reached $625,000 in May and has dropped 5.8% since.

David Madani, an economist at Capital Economics and a noted bear who has predicted home prices will decline as much as 25% on average in Canada, says the rhetoric from organized real estate is typical for any housing cycle.

“Look what happened in the United States, people started calling for a soft landing. It’s almost to be expected. It’s the narrative in the boom, bust housing cycle. You can look to other countries, too,” Mr. Madani said. “The industry insiders say ‘don’t worry.’ ”

He sees the dropoff in sales as a standoff between buyers and sellers, and the next phase will see prices cut if people want to move their homes.

It has come down to an argument over how much prices will pull back. Phil Soper, chief executive of LePage, added his voice to the debate Tuesday with a report from his company calling for a “brief, mild correction,” with prices actually rising 1% overall by the end of 2013.

“The silver lining in every real estate market correction is that there is a balance shift. After an extended period of frustrating bidding wars in key, supply-constrained regions, and spring markets characterized by price increases that make financial planning difficult, Canadian homebuyers will see momentum shift in their favour this spring. They should be met with more choice — and stable prices,” he said.

At the BMO conference, the bank’s senior economist Sal Guatieri said much of what is happening in the market was to be expected and generally in line with past performances.

“In most regions demand is down from last year but remains healthy at near the past decade norm,” said Mr. Guatieri. “After a decade-long boom, the so-called soft landing appears to be underway in most regions. We expect it to continue.”

Gord Nixon, chief executive of Royal Bank joined the fray at an RBC banking conference in Toronto, telling audience members the real estate market is relatively solid in Canada. “We have seen a slowdown in sales and we’ve certainly seen a slowdown in mortgage demand but price levels are relatively stable,” he added, noting that by most metrics — other than debt-to-disposable-income — indicators are in line with historic standards. “So our expectation is we’ve got this sort of soft landing scenario on the real estate side.”

At the BMO roundtable, the message was that markets in Alberta and Saskatchewan could buck the national trend, driven by growth in both provinces.

“Alberta is the talk of the country, planning on leading the country in economic growth. Of course, it’s been buoyed by our strong oil and gas industry,” said Charron Ungar, president of the Canadian Home Builders’ Association, Calgary Region.