Economic Challenges Research

slow April sales figures

saw activity dip 4.4 per cent from March

The slow sales are said to have been driven by new mortgage rules which came into affect April 19 and made it tougher to borrow.

Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers. By contrast, higher end homes sales in Greater Vancouver and Toronto had their best April ever.

more than 50 per cent of condominiums sold in the past year were purchased by buyers who do not intend to occupy their units and plan to rent in many instances.

People are buying these for capital appreciation.

Don Lawby, chief executive of Century 21 Canada, says the housing market has been affected by foreign investors who have reacted to tougher tax rules in their home country by investing abroad.

They are not afraid to offer above price and they are not afraid to get into a bidding war

Nevertheless, Lawby says

these investors

are small and the impact on the larger market minimal.

while April numbers present a market with falling sales and rising prices,

market conditions were exaggerated by some one-time issues.

Un-foreclosed houses are NOT selling like hotcakes, but this is because their owners have yet faced up to the reality of how little they are worth (or, put differently, because they don't yet have to sell).

The vast majority of plans to "stop prices from falling" involve subsidies of one form or another (tax credits, subsidized mortgage rates, etc.)  These may slow the decline, but they won't stop it

subsidizing/encouraging debt-bingeing and homeownership is what got us until this mess in this first place.

The fastest and most effective way to stop prices from falling is to let them fall until they've reached equilibrium. And then start rebuilding wealth, equity, and economic growth from there.

Lots of Americans are going to lose their houses in the next few years regardless of what we do.

Keeping the number of foreclosures as small as possible

will just delay the inevitable

Importantly,

Foreclosures are caused by owners' inability to make debt payments.

The best way to stop foreclosures, therefore, is to get people out of houses they can't afford and into houses they CAN afford (whether by renting or buying).

the house-price issue

(No reason to buy or build now if you think prices will be cheaper tomorrow).

Businesses and consumers

open up their wallets

when house prices stop falling. And the fastest way to get there is to let them fall.