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Canadian Real Estate Trends Report

Scotiabank forum predicts another healthy year ahead for Canadian real estate markets

Canadian real estate markets will remain remarkably buoyant, especially in light of the deepening housing downturn in the United States and the generally softening conditions in most other advanced economies, according to experts who presented at Scotiabank's Canadian Real Estate Outlook and Trends Forum, held yesterday in Toronto.

During the forum, keynote speaker Phil Soper, President and CEO of Brookfield Real Estate Services commented, "Our expectations are that balanced conditions will prevail throughout 2008, which will mark a return to a more 'normal' environment than the highly skewed seller's market that we have experienced over the better part of this decade. A stumbling American economy will impact us, slowing growth here at home, yet the solid foundation that supports the contemporary Canadian economy should prevent the housing market here from retracting."

Also speaking at the conference was Adrienne Warren, Senior Economist, Scotiabank. "We expect construction, sales and price gains to moderate in 2008 due to decreasing affordability, especially for first-time buyers, and some softening in domestic economic conditions associated with the intensifying U.S. slowdown," remarked Ms. Warren while presenting the findings of her latest Real Estate Trends Report. "Housing starts will likely ease to around 204,000 units, still firmly above underlying household formation, with the more affordable multiple-family segment holding up better than single-detached construction."

Ms. Warren added that more balanced resale market conditions, as sales volumes edge down and more listings come on stream, should bring average price increases back into the mid-single digit range. Renovation activity, which lags the trend in home resales by one to three years, will outperform new construction.

Mr. Soper added, "New flexible financial products, affordable interest rates and increasing choice in the condominium market across Canada, will continue to attract first-time buyers to real estate - even in high-priced markets. We can also expect to see a broadening buyer pool, as emerging high growth market segments such as single female buyers are anticipated to take advantage of the favourable market conditions."

Economic conditions still favour Western Canada

In her report, Ms. Warren states that housing starts totaled 228,343 units in 2007, essentially matching the high level of activity of the prior two years and only two per cent below the 233,431 unit peak of 2004. Strength was evident across the country, but led by more than a 60 per cent surge in new homebuilding in Saskatchewan, underpinned by strong job growth, good affordability and a positive shift in net interprovincial migration. Resale activity was equally brisk, with MLS sales volumes reaching a new record in 2007 and average home prices climbing a further 11 per cent. While Western Canada continues to lead in price appreciation, average prices rose by at least five per cent in all provinces last year. The momentum of construction and sales has carried through to 2008.

Ms. Warren also reports that from a demand standpoint, economic conditions still favour Western Canada, with its booming resource-based industries and extremely tight labour markets. Yet, affordability is becoming a constraining factor in several centres, including Calgary where average home prices have doubled in the past four years.

From a supply perspective, most Canadian markets are still in sellers' territory, in which prices would be expected to rise faster than inflation. Yet, some of the hottest markets in recent years, including Edmonton, have become much better balanced due to a flood of new listings. Based on a combination of job growth, housing supply and affordability, among this year's potential outperformers are Saskatoon, Regina and Winnipeg in the West, Sudbury, Hamilton and Quebec City in Central Canada, and St. John's to the East.

Commercial markets to lead

Commercial market activity in Canada should be brisk in 2008 even as the pace of residential building gradually cools. Notwithstanding a number of major new office tower developments currently underway, centred in Toronto and Calgary, significant new space is not expected until 2009.

"Given a high pre-lease ratio, vacancy rates should remain low and rents on the rise," Ms. Warren said in her presentation. "The national downtown office vacancy rate hit a 22-year low of just 4.7 per cent in the final quarter of 2007, with both Calgary and Vancouver below the three per cent mark. Demand for new office space is being supported by strong employment growth, environmental and technical upgrades, and institutional investor interest.

A housing boom for the history books

Ms. Warren concluded her presentation with the discussion of real home price appreciation, noting that Canada's current housing boom is the strongest and longest of the post-war era. Between 1998 and 2007, average inflation-adjusted home prices have soared some 65 per cent, easily besting the 32-56 per cent appreciation of the prior three housing cycles of the 1960s, 1970s and 1980s. At their peak in 2005, U.S. real home prices had increased a cumulative 48 per cent from the 1995 trough.

"Canada's record price gain owes entirely to the longevity of the expansion," said Ms. Warren. "The current housing upswing is going on ten years, whereas the prior three cycles ranged from five to six years. It has also outlasted the housing booms experienced in many other advanced economies this decade. Average annual price appreciation over this period has actually been quite typical at just under six per cent per year, and well below the almost 10 per cent average annual price gains recorded in the late-1980s."

Economy to maintain moderate growth

Aron Gampel, Vice-President and Deputy Chief Economist, Scotiabank, also provided a brief overview of the changing economic and financial conditions that are affecting the Canadian outlook.

According to Mr. Gampel, "the Canadian economy is likely to maintain moderate growth this year and next, with the strength of the development boom in the resource-rich regions of the country providing a much needed offset to the increasing drag on our manufacturing centres from the intensifying U.S. slowdown and persistently strong currency."

Mr. Gampel added that "while underlying domestic fundamentals are still encouraging and broadly supportive of the real estate market, the increasing downside risks to the U.S. outlook could further restrain housing's overall performance."

See the full report »

February 27, 2008 in Canadian Market Forecast | Permalink


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I agree with "investor." As an American, we in the real estate industry are already gearing up for a potential down turn in the 2013 market. However, savvy, financially prepared Canadians could weather the storm much better this time around.

Posted by: Pall Spera | Jan 30, 2013 7:07:36 AM

brampton real estate

One of the greatest and most obvious reasons to consider buying a home is the interest rates. Interest rates today, are some of the lowest rates that we have seen in years. It is possible that they will go even lower. You may think that getting a home loan in order to take advantage of these rates is impossible. Although credit standards and loan approval may be higher than before, obtaining a loan is well within the reach of homebuyers with a good credit rating and a steady income that can support the monthly mortgage payments.

Posted by: torontohomeandhouse123 | Jun 11, 2010 5:01:12 AM

The important statement in the article is that homes have soared an inflation adjusted 65%. That's way too high, which is a sure sign that prices will need to fall to come in line with incomes. This is not a good time to buy or upgrade, especially if you have a small down payment.

Posted by: Al | Mar 3, 2008 8:38:51 AM

Well judging by this statistic I would be suprised if this is going to be a healthy year for real estate market, but these guys will spin anything into a positive light. Remember past data is not a determinant of future results.

More than three-quarters of Canada's exports — including oil, minerals, lumber and passenger vehicles — are sold to Americans. The U.S. housing collapse already has slashed sales of Canadian lumber. Now, as a historic decline in home values causes American consumers to retrench, U.S. auto sales this year are headed to a 10-year low, according to TD Bank Financial Group in Toronto.

Posted by: Investor | Feb 29, 2008 11:38:09 AM

Despite the lack of an official declaration of US recession, savvy Canadians are already gearing up to tighten their belts. In my opinion as a Vancouver realtor real estate is once again proving to be a solid investment that grows the hard-earned dollars of homeowners. Being financially prepared for a U.S. recession should give Canadians the breathing room they need to ride out the toughest times.

Posted by: Vancouver realtor | Feb 29, 2008 10:51:43 AM

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