The ease with which a Canadian could sell a home tightened up sharply last month, as the global financial crisis sapped consumer confidence and economic growth slowed. Reflecting this, Canada's costliest cities for housing have suffered significant price declines from this time last year.
From Toronto to Vancouver, the country's highest-priced markets are witnessing a significant drop in average selling prices, as much as 10 per cent in Toronto. In cities like Montreal and Ottawa, however, prices never really soared and there was very little change over the past year.
According to new numbers from the Canadian Real Estate Association, the number of homes sold in October plunged by 14 per cent in October, to the lowest level in more than six years. The group also said the average Canadian selling price fell by 9.9 per cent from a year earlier, although this is not a good guide to reality.
While the phenomenon of falling sales and prices is a real one, there's good reason to think that prices are down by much less than the official statistics.
That's because price data from the national association and its local real-estate boards are simply an average of all selling prices, with little or no adjustment for the location or value of homes sold. That distorts price changes when conditions vary sharply from one city to another, worries Douglas Porter, deputy chief economist at BMO Capital Markets.
Take this example: if you had lunch at a restaurant most days last year, but decided to bring a sandwich most days this year, your average cost of lunch would drop from maybe $15 a day to maybe $5. But that wouldn't tell you much about the price of either a restaurant lunch or a sandwich - just that you had more of one last year and more of another this year.
There's evidence that exactly this problem is beginning to have a strong effect on the Canadian numbers for average home prices. In Toronto and Calgary, which are the next most-expensive markets in the country, transactions also fell off sharply, down 35 per cent in Toronto and 20 per cent in Calgary.
The result: high-priced cities that loomed large in the statistics a year ago had shrunk to a much smaller weight in this year's calculation, lowering the average Canadian price without telling us anything much about the price of a particular kind of home in a particular city.
The real-estate association tried to adjust for this problem by adjusting its data to reflect the number of homes in each province it used in the calculation. This slashed the price drop in half, to five per cent.
And even this adjustment probably didn't catch all of the distortion created by huge drops in sales activity in Canada's costliest cities - Vancouver, Calgary and Toronto - and much smaller declines in cheaper ones.
This doesn't mean that prices aren't falling. Even in Montreal, which has the strongest market of any big city, the average price has edged down about one per cent in the past year. Real-estate board figures suggest drops of nine per cent in Vancouver and 10 per cent in Toronto.
Analysts expect national average prices to keep dropping - maybe five per cent more, but nobody really knows - as a slumping world economy drags Canada into a mild downturn over the coming months.
But this isn't a U.S-style meltdown of the kind that - using more reliable price numbers - has collapsed the average U.S. home value by 20 per cent over the past two years, with maybe another 10-per-cent decline to come.
Canada is hitting an economic rough patch, but it doesn't have a housing market undermined by mortgage fraud and crumbling financial institutions. What it does have is an economic slowdown that will mostly squeeze the most overvalued homes in the most overvalued cities.
If you need to know more about Toronto prices call Realtor Alex at (416) 723-9383.