If there is an upside to a recession, it's the inevitability that stuff gets cheaper.
Falling home prices may be hard on developers, but they can spark opportunity for first-time buyers – if the price is right.
According to figures released yesterday by Statistics Canada, Canadian new home prices declined by 0.8 per cent in January from the same month a year earlier, the first year-over-year decrease since January of 1997.
"Years of frenzied construction activity had left the market overdue for a correction," said Valerie Poulin, an economist with the Conference Board of Canada, in a report yesterday. "With demand for new homes waning across Canada due to poor economic conditions, the market drop off appears to be more severe than expected."
Declining housing starts will cut builders' profits by almost 20 per cent this year, to $3.2 billion, according to a report by the board. Residential construction industry growth is also expected to fall drastically, recording the biggest decline since 1995.
"Consumers are postponing expenses such as renovations or buying a home," the Conference Board said. "Tighter credit conditions are further dampening demand."
With prices falling, buyers in the existing home market can find detached homes for what some Toronto homeowners spent on their kitchens during the boom years. Prices start as low as $75,000 in Windsor, $119,000 in Niagara Falls and $125,000 in St. Catharines – the top three cheapest cities for first-time home buyers identified by a ReMax Ontario Atlantic Canada report yesterday.
"You're not getting the Ritz at these prices, and a lot will need some elbow grease, but they will be liveable first-time properties," real estate investor Mike Sergeant said.
An ailing auto industry in devastated Windsor means average prices have dipped 10 per cent this year alone. Buyers seeking entry-level homes can find houses for $75,000 in Windsor's East and Central neighbourhoods.
"While skittish purchasers remain cautious ... there are those who are venturing into the market," ReMax said.
And the price of entry is remarkably low: There were 24 sales under $60,000 in the downtown core. One property sold for $25,000.
"Affordability has greatly improved and buyers are firmly in the driver's seat in just about every market surveyed," said ReMax executive vice-president Michael Polzler.
Though affordability is improving, it's another thing to convince first-time home buyers to commit when they think housing prices are set to fall further. The Canadian Real Estate Board is forecasting an 8 per cent drop in home prices by the end of this year.
During the last quarter of 2008, first-time buyers "largely checked out," said Royal LePage CEO Phil Soper. "They're sitting at home, or renting. They don't have to buy."
However, as affordability improves, Soper expects first-time buyers to return in increasing numbers this year. In the Toronto market, almost 50 per cent of all February sales occurred under the $300,000 price point, compared to 43 per cent a year ago.
First-time buyers who are secure in their jobs are still favouring condos priced in the $200,000-plus range, despite warnings the sector may be overbuilt.
Detached homes in the city's east end start at $350,000 and are still out of reach for many. Starter detached homes in the city's central core start at $550,000.
While supply is up across the board, with a 19 per cent increase in listings, there is more demand in the lower end of the market.
With home prices and starts falling, builders are concerned about an Ontario Chamber of Commerce initiative that calls on the province to blend the provincial sales tax and Goods and Services Tax into a single tax. The chamber said streamlining could save $100 million.
That didn't sit well with developers, who shot back yesterday in a report by housing economist Frank Clayton for the Building, Industry and Land Development Association. Clayton concludes harmonization would result in a $46,676 increase in tax on an average new home in Toronto. "The adverse consequences ... would be excessive," he said.
