Canada's slumping housing market will get worse before it starts to get better around the end of this year, say residential real estate industry leaders.

"We're certainly going to see a slower period over the entire country in 2009," says Calvin Lindberg, president of the Canadian Real Estate Association (CREA).

"I don't think we're going to turn things around quickly. We're certainly part of this whole world financial situation that's going on ... but I also don't see things absolutely tumbling as far as prices go in real estate."

Toronto-based Royal LePage Real Estate Services is predicting a three- percent drop in average house prices across the country. The company forecast says "emotional reaction to recent economic and political instability" dampened consumer confidence during the latter part of 2008, causing a slowdown in house sales activity.

- Source: Royal LePage Real Estate Services.
Average Housing Prices

However, Royal LePage also predicts that "a more rational understanding of the issues" and government corrective measures will cause activity to increase in the latter half of this year.

Royal LePage foresees only modest price and unit sales corrections.

The national average house price is expected to dip slightly to $295,000 from $304,000 in 2008, which fell marginally from $307,265 in the peak year of 2007.

"While Canada's housing market is anticipated to continue to move through a period of adjustment over the next six months, we should expect modestly lower home prices, not a U.S.-style collapse, which was brought on by a structural failure of the entire American credit system," Royal LePage CEO Phil Soper said in a statement.

"Most consumers are not aware that nationally, Canadian housing market activity peaked in 2007 and has been adjusting lower since. We are well into this inevitable cyclical correction."

In mid-sized cities where prices remain below the national average, such as Regina and Winnipeg, prices are expected to increase moderately. Regina's average price is expected to rise six percent to $243,300 while the Manitoba capital is predicted to see a four-percent boost to $204,900.

"The Manitoba market - the Winnipeg market in particular - is really not performing all that badly," says Lorne Weiss, a Winnipeg realtor and CREA director. "In fact, it's performing quite well in comparison to other markets in Canada. We're not seeing the significant drops in pricing that we've seen in other parts of the country - although we are seeing a significant increase in inventory. Certainly, the supply and demand ratios have changed."

Weiss and other realtors across the country say they will have to ensure that properties are priced properly for quick sales.

The steepest price decline is forecast for Canada's most expensive city, Vancouver - "a natural cyclical reaction to an extended period of high price appreciation," says the Royal LePage report. Prices in the West Coast city are forecast to plummet nine percent.

"I work in the West Vancouver market and we've kind of led the charge (in price reduction)," says CREA boss Lindberg, a sales agent. "We started to back off in April and May and some other areas of Canada didn't really start to see it until the fall."

Len Wong, Calgary realtor

Gregory Klump, the Ottawa-based CREA's chief economist, says B.C. and Alberta, which saw booming prices a couple of years back, will experience the sharpest sales and price declines this year.

"There's been a very sharp downturn in consumer confidence (in B.C.), as there has been in other provinces," says Klump. "It's just a remarkably quick decline in the recent months in sales activity."

Klump says homebuyers are questioning whether now is a good time to make a major purchase and wondering about their job security.

"Those markets that had a remarkably fast rise in prices, and I'm thinking specifically here of British Columbia and Alberta, are facing a cor- rection," says Klump.

According to the Calgary Real Estate Board, single-family home sales slowed dramatically at the end of 2008. In December, Calgary's metro sales fell 47 percent to 449 from 837 in the same month a year earlier.

Between November and December of last year, single-family home sales in the Stampede City dropped 33 percent to 670 from 846.

Annual single-family home sales went down 27 percent to 13,455 from 18,438 in 2007.

"Overall, I think 2008 was a reasonable year for real estate in Calgary," Calgary Real Estate Board (CREB) president Ed Jensen said in a report.

"Currently, there are still great opportunities available to the buyer, but how long that will last remains to be seen. Consumers are sitting tight at the moment, watching their dollars and the media at the same time."

Len Wong, who consistently ranks among Calgary's top-selling realtors annually, expects the market to be like a roller coaster.

"Last year, with oil and migration and everything being fairly stable, we could weather the storm," says Wong. "But $40-$60 oil has caused a lot of the companies to revisit their spending. I thinking you're going to see some layoffs in the oilpatch and that could send a ripple effect, whereas in past years we never had that."

Because of a surplus of housing inventory, says Wong, the Calgary market has done a 180° turn in favour of buyers, who are increasing their demands.

"I think it's going to be a tough market out there for the seller," says Wong, whose team sold about $100 million worth of properties last year. "I would be very happy to stay relatively the same."

CREB says the average price of a Calgary single-family home in December was $417,398, a six-percent drop from $444,769 in December 2007. The average price of a Calgary condo sank 10 percent to $274,919 from $304,719.

The number of new single-family home listings descended 15 percent in December to 836 from 984 in the same month in 2007. But the 31,259 newly listed homes in 2008 remained about on par with the 31,722 in the previous year.

However, Calgary condo new listings declined eight percent to 431 from 468 in the final month of 2008 and 2007, respectively.

Wong predicts more developers will desert projects as banks insist on more presales - sales of units before they're built - because of the credit crunch.

"I definitely do not think it's an investor's market, because you've got to see upside in the marketplace for investments to work," says Wong.

Charlie Ponde, president of the Realtors Association of Edmonton, has released a forecast that predicts the average house price in the Alberta capital will hover around the 2008 figure of $350,000 by year end. Ponde expects the average price of an Edmonton condo to fall five percent to $222,500 as inventory increases.

"Buyer reluctance will continue through the first part of the year, but confidence will return in the latter part of the year and sales will pick up," said Ponde in a news release.

The outlook is even less bright in Ontario.

Brian Walker, immediate past-president of the Ontario Real Estate Association, who owns an agency in Richmond Hill, says declines last September were the most dramatic that he has seen in his 30-year career.

However, he adds, U.S. economic factors are influencing the Canadian real estate market, but Canada will fare better because interest rates and unemployment are relatively low.

"(People) need to live somewhere," says Walker. "If I was in Windsor (the heart of the struggling Canadian auto industry), I would be a little bit worried, but I don't see massive job loss in the (Greater Toronto Area)."

In Toronto, an increase in supply appears likely to reduce prices.

Canada Mortgage and Housing figures show total new-home starts jumped 26.8 percent in the country's largest market in 2008, to 42,212 from 33,293.

A record 23,930 Toronto apartment starts spelled a 130.9-percent increase over the 10,380 in 2007. Including apartments, rowhouses (5,280) and semi-detached units (2,864), new-condo supply rose a whopping 137 percent.

CREA chief economist Klump says when the economy begins to rebound in the third quarter of 2009, so too will inflation, and real estate generally does well in an inflationary environment.

"So the price declines are not expected to last."

- with files from The Canadian Press (Monte Stewart can be reached at monte@businessedge.ca)