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Checking in on real estate: July numbers

By JIM PITT
Special to the VOICE

The real estate market in Niagara Region is changing. Listings are up and sales are down. Prices are sliding and rules could be changing. Let’s take a look.

When looking at the real estate market, a few factors have to be taken into consideration. The market is seasonal, meaning there are more sales in the spring and fall months than in the summer and winter months. When comparing sales it is generally accepted that you compare the month of one year to the same month of the previous year, or year-over-year. Prices, however, are not seasonal, so when looking at these numbers you should compare prices month-to-month to get an idea if there is a trend.

Throughout the early spring to June the trend was decidedly up. July saw that trend reverse somewhat. According to Randy Mulder, President of the Niagara Association of Realtors, quoted in the Welland Tribune, the increase in inventory in July is, “indicative of a Market shift that has moved strongly from a sellers market to a balanced market.”

The article went on to say, “Average sales prices, however, dropped by $125,000 compared to a month earlier.” Mr. Muder’s numbers are different from the MLS Niagara report. They’re worse, but I am using the MLS Niagara numbers below. If your investment advisor told you that your portfolio had dropped $125,000 in one month I don’t think you would be lulled into believing we were in a more balanced market. I think you might believe we were in a stock market crash. Real estate salespeople are not required, by law and regulation, to be as forthcoming with the facts.

Listings of houses for sale in the Niagara Region went up year-over-year. In July 2016 there were 885 listings. In July 2017 there were 992 listings, a 12% increase. In Pelham listings were up only one, from 36 to 37. Sales were down.

Regionally, in July 2016 there were 831 sales, while in July 2017 there were 598 sales, a decline of 28%. In Pelham sales fell from 43 in July 2016 to 30 in July 2017, a 30% fall.

Prices last month were at the highest yet. The average price, Region-wide, in June 2017 was $457,456 and in July 2017 the price was $375,903, or a 16.8% decline. In Pelham prices fell 10% from $588,906 in June to $529,490 in July. Does this mean that a downward trend has begun?

It is too early to say, but sales dropping while listings are rising usually indicates a market that is overpriced. Price drops are more dependent on the sales mix. The sale of a couple of expensive homes in a small market can skew the averages up. If sales of high-end homes are stalled, then price averages are less. Regionally, this price drop is quite large and the market is also of a good size. Locally, Pelham is a small market, so price fluctuations can be more pronounced. Real estate boards only provide average, not median, prices so it’s tough to get a good idea of the price trend. That being said,  prices in the GTA have changed rather dramatically over the last three months and prices were down 4.6% in July, the biggest one- month drop since 2000. I don’t think it’s different here.

The federal government is contemplating some changes to the mortgage lending market that may be implemented this fall. I mentioned in an earlier column that stress-testing of borrowers was a distinct possibility. This seems more likely of late. A borrower would have to qualify to borrow at the prime mortgage rate of 2.84% as of today, plus 2% for a total of 4.28%, to be approved. This will include all mortgages, insured and uninsured, meaning everyone would need to pass this stress test. An additional 1% would be added, for a total of 5.28%, for applicants that do not fit rigid requirements. If the house you own has dropped in value after an appraisal, and you now have less than 20% equity, you would have to pay this extra percentage point. If there has been a divorce, or job loss, or pay cut, this would also require you pass the higher test. Said Rob McLister, a mortgage broker at Ratespy, this would, “slash buying power for prime buyers by roughly 18%.” This means that homebuyers would be approved for loans 18% lower than they can qualify for now.

Would the federal government really do this? That is hard to say. These measures, along with an increase in borrowing rates, would certainly end this hyper-inflated housing market. The government and the Bank of Canada have been warning consumers for months that debt levels are too high and the housing situation is critical, especially in the GTA and Vancouver. They may believe that a controlled correction is possible to bring house prices down to the historical norm, but that would mean a long, steady price drop. Previous housing bubbles have ended more dramatically in countries like Spain, Portugal, Greece, Ireland, the U.S., Japan, Denmark, Italy, and the Netherlands. But I suppose a touch of pixie dust and some crossed fingers could make it different in Canada.

Anyway, a 4.6% one-month price-drop  is a harbinger of a severe correction that may already be underway in the GTA. But again, even though prices here went down 17% in one month, it might be different in Niagara. Just ask a real estate salesperson: they’ll tell you it’s always a good time to buy.

On a related matter, the town has “visioned” the Haist Street arena and parkland and come up with five options for what to do with the site after it’s closed down—or maybe before; it’s not entirely clear. You may go online and vote for the least-worst from the following choices: a bunch of houses; a bunch of houses and some townhouses; a bunch of townhouses and some houses; a bunch of townhouses; or a bunch of apartments.

At first I was hesitant to proceed with this survey. I had just read MP Dean Allison’s piece in the Voice concerning online con artists and thought that this survey setup looked suspicious. But in the interest of the community, I threw caution to the wind and started the daunting process.

I can see how the procedure would frighten off many residents who are properly afraid to divulge so much information. After entering a lot of personal information such as name, address, phone number, e-mail address, and geolocation, and replying to an e-mail from something called Placespeak, and receiving a phone call with my “secret code,” then entering this “secret code,” I was finally able to take the survey and check “none of the above.”

Gee, I thought in a democracy the secret ballot was sacrosanct, but then I remembered where we actually live. I wondered what “none of the above” might mean. Anyway, if you’re so inclined to divulge personal information and await your “secret code,” you can vote for one or none of the choices. I’m sure that what is chosen will be of no surprise to anyone who follows the decision-making process of this mayor and council. A truly frightening process. Kudos to the mayor and council. Bravo.

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The Voice of Pelham
Pelham's independent news source from the heart of Niagara.