Real Estate NewsCooling Canadian Market Means More Choice For Buyers
Last year at this time, real estate experts predicted that Canada"s red-hot real estate market would cool off due to higher interest rates. What actually happened is that interest rates remained low and most Canadian markets set new sales records.
This year"s forecasts are in, and once again most forecasters expect the market to slow down. But it"s still going to be a very strong year for Canadian real estate, and house prices are expected to rise faster than the pace of inflation.
"While we expect the existing-home market to become more balanced, it will remain tight, causing house prices to continue to rise," says Bob Dugan, chief economist at Canada Mortgage and Housing Corp. (CMHC). "However, as sales edge lower, relative to new listings coming on the market, growth in house prices will moderate relative to the 2002 and 2003 pace."
CMHC predicts sales will drop from 429,800 in 2003 to 412,000 next year, and that house prices will rise another 4.8 per cent in 2004.
A report from TD Economics agrees, calling for a five per cent boost in house prices, along with a three per cent drop in unit sales. The report says the lower sales volume is a reflection of "a dwindling pool of first-time homebuyers, some erosion in housing affordability and weaker population growth."
The forecast from Royal LePage Real Estate Services agrees that many first-time buyers have already made their purchases, particularly in Halifax, Toronto and Calgary. Royal LePage predicts that house prices will rise 3.2 per cent to $210,500, and that unit sales will dip to 429,000.
"While certain cities, such as Montreal and Vancouver, will continue to face an inventory crunch, most major markets will experience a replenishment of inventory that will afford house hunters some of the best choices they have seen over the last few years," says Royal LePage president Phil Soper.
The Re/Max forecast says low borrowing rates and strong job growth will continue to fuel the market in 2004, and that a stronger U.S. economy means rising exports for Canada and even stronger job growth. Re/Max says 433,900 units will be sold in 2004, which is about the same as this year. It says prices will rise by about three per cent.
Last week Re/Max issued a report that says despite rising housing values in Canada, carrying costs are still lower than 1989 levels in 71 per cent of the country"s housing markets. It said that incomes required to carry a mortgage on an average-priced home are lower now than in 1989.
"When you factor salary increases into the equation, there"s no question that most purchasers are better off in today"s marketplace," says Pamela Alexander, CEO of Re/Max Ontario-Atlantic Canada. "Discounted carrying costs have offset price appreciation in markets across the country. With interest rates expected to rise in the coming year, however, purchasing patterns could be altered. One or two percentage points may not have an impact on housing markets, but anything more significant and we could see some softening."
The TD report says that even if interest rates start going up and make homes less affordable, there"s no sign that the housing market in Canada is a bubble that"s about to burst.
"Although the recent remarkable strength in housing has led some to draw comparisons with the late 1980s, there is considerable evidence that markets are currently resting on much healthier underpinnings," says Derek Burleton, senior economist at TD Bank Financial Group. "Interest rates are much lower than in 1989. The recent price increases in new and resale homes have paled in comparison to those recorded during the last bubble. These factors mean that housing affordability remains favourable."
Burleton also notes that supply and demand conditions for housing are better balanced now than in 1989, and that there is "very little evidence of speculation in either the buying or building of homes in the current market." TD Economics says Vancouver, Calgary and Ottawa will have the strongest housing markets in 2004 and 2005; Montreal, Edmonton and Halifax will deliver an average performance; and Regina, Toronto and Winnipeg will trail the national average.