The Canadian Real Estate Market Is In Good Shape

By Peter Diamant
With the recently released May report from the Canadian Real Estate Association (CREA) that sales of resale homes in Canada are cooling and price increases tapering off, we can put to rest the worry about an impending housing bubble, similar to the one that happened in the US a couple of years ago. This fear of the housing bubble drove the followers of the market and professional analysts insane. These same individuals are now worried sick about the opposite happening - an impending housing market collapse.

What really happened?
i) Canada suffered a short, steep drop in home prices as the recession hit late in 2008. Fortunately, this was immediately followed by a steep rebound as it became obvious that the record low interest rates offered by the financial institutions presented an historic chance to buy a home cheaply.

ii) Now, just as experienced analysts had predicted, the rebound is being replaced by a more stable price environment. The number of homes sold in May fell by 9.5 per cent, while year-over-year price gains moderated to 8.4 per cent, off from the peak gain of 16 per cent in March. Our real estate rebound was possible because Canada's banking system remained in good health, unlike in the U.S. which has suffered deep scars. Historically low mortgage rates helped repair the relatively modest damage to prices inflicted by the downturn. Now a more stodgy, almost boring outlook actually comes into sight: a market where predictable market forces affect the sales and prices.

iii) As a result of rising prices, the supply of new listings is growing. At the same time, overheated demand of the first 4 months of 2010 is ending. Fewer buyers are anxious to snap up property fast now that their window of opportunity is closing. Interest rates are rising, albeit slowly and by minimal amounts. The HST on new homes will come into effect shortly in Ontario and British Columbia, the country's hottest markets. In fact, the biggest price gains driving national averages came from Vancouver and Toronto. In Montreal and most of Canada's other big cities, prices rose modestly so there won't be much excess to work off.

In retrospect, the concerns about real estate in Canada following in US footsteps has not materialized. The reason Canada avoided a collapse in prices is because the economic and banking fundamentals avoided the disaster that unfolded in the US and elsewhere. Similarly, there wasn't much sign of an impending bubble. Prices were being driven up by temporary factors brought about by conscious political and economic decisions and not by speculation and overseas buyers as has happened in many markets in the US. What we had experienced was a modest overvaluation with very little sign of speculation.

So what is the outlook for the coming year? Most economists agree on a modest fall in prices in overpriced markets, like Vancouver and Toronto, pulling down the national average price by an estimated seven per cent. Other large markets such as Montreal will experience a smaller drop - approximately 3-4%. Regions such as the Prairies and Maritimes could even see small gains in the coming year.

Peter Diamant is a Realtor with Sutton Group-Admiral who specializes in Richmond Hill Homes for Sale and Richmond Hill Condos for Sale. For more information about the real estate market or to search for available properties, please visit the website.

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