Average house prices forecast to fall 3.0 per cent
- Historically low interest rates, stable local economies and increasing
affordability should support Canada's residential real estate market
during transitioning period -
TORONTO, Jan. 6 /CNW/ - After experiencing a significant reset in 2008 -
a reaction to continuous dire news surrounding the health of the global
economy combined with a cooling from the previous years' fervid activity
levels - Canada's resale real estate market should see only modest price and
unit sales corrections take place across the country during 2009. Both
national average house prices and the number of homes sold is expected to
decline this year, according to the Royal LePage 2009 Market Survey Forecast
released today.
Nationally, average house prices are forecast to dip by 3.0 per cent from
last year to $295,000, while transactions are projected to fall to 416,000
(-3.5 %) unit sales in 2009. In spite of this cooling trend on a national
level, price and activity gains are anticipated in some provinces.
Emotional reaction to recent economic and political instability did much
to dampen consumer confidence during the latter part of 2008, causing a marked
slowdown in house sales activity. However, as a more rational understanding of
the issues gains ground, together with a wide range of announced corrective
measures, consumer confidence is anticipated to recover, prompting real estate
activity to pick up once again in the latter half of 2009. Further, Canada in
2009 enjoys a stronger economic foundation than most countries and that should
temper the housing market correction. The combination of low inflation,
reasonable employment levels and improving housing affordability, driven in
part by low mortgage rates, are anticipated to stimulate demand in the coming
months.
"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," said Phil Soper,
president and chief executive of Royal LePage Real Estate Services. "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."
Added Soper: "While a grey cloud hangs over some markets, the sky is not
falling. In recent years, Canada has been a difficult place to be a purchaser
of real estate, particularly for first-time buyers. When real estate markets
correct, inventory levels rise, providing buyers choices instead of
frustrating bidding wars. In 2009, appropriately-priced homes will still sell
for fair value."
The housing market is expected to perform quite differently from region
to region across the country. In many mid-sized cities where home prices
remain below the national average, such as Regina and Winnipeg, prices are
expected to increase moderately through 2009, as home ownership remains
particularly affordable. The most significant price decreases are forecast for
Canada's most expensive city, Vancouver, which has experienced above average
price increases for most of the decade. The correction is a natural cyclical
reaction to an extended period of high price appreciation. Vancouver's
fundamentals, including growing population figures and the positive economic
spinoffs expected from the 2010 Olympics, remain very positive.
Observed Soper: "For several years, Vancouver experienced aggressive
price run-ups in response to overwhelming levels of demand - conditions, which
eventually reached a tipping point. While buyers will be acquiring properties
for less in 2009, it is important to note that prices are coming down from
all-time record levels."
Secondary Ontario markets heavily populated by people working in the
manufacturing sectors are also anticipated to experience greater than average
declines in house prices and activity levels in 2009. In contrast, real estate
in Montreal and Ottawa is poised to remain stable, with average house prices
relatively flat through 2009.
After moving through a period of correction that started in 2007, well
before other regions in the country, both Calgary and Edmonton's housing
markets are anticipated to return to a growth state later in 2009,
characterized by stable average house prices and increased unit sales. Despite
slowdowns and delay with some major energy projects, Alberta's economy remains
one of the strongest in Canada.
Looking east, Halifax's real estate market is expected to experience very
modest price appreciation through 2009. After experiencing strong price
increases over the last year and a half, the market has hit its capacity for
absorbing rising prices and activity levels. The city's diversified array of
industries is expected to bolster the economy and continue to create solid
employment opportunities, stabilizing home values.
Canadians have been confused and justifiably skeptical of the efforts of
the worlds' central banks and governments to combat the global economic
crisis. There is broad belief, however, that Canada's financial house is in
better shape than many peer countries, particularly the U.S. While the federal
and most provincial governments have been slow to implement economic stimulus
packages, they enjoy broad public support in principle. Together with the
actions taken by the Bank of Canada, the positive impact on consumer
confidence stemming from infrastructure spending announcements and other
stimulus programs is expected to be significant.
Concluded Soper: "We believe that the Canadian economy will struggle
early in 2009, but that conditions will progress continually throughout the
year. Improving credit markets, the stimulative impact from a weaker Canadian
dollar, together with the implementation of large fiscal stimulus initiatives,
set the stage for a return to growth in the second half of 2009."
Economic Factors Impacting 2009 Forecast
Global Economic Woes:
No country is impervious to the current economic woes being felt around
the world. The poor performance of the equity markets and the constant stream
of pessimistic economic news had a very negative impact on housing activity in
Canada in 2008. Consumer confidence is expected to slowly recover during 2009
as the impact of the many corrective actions introduced and announced takes
root.
Tempered, but continued growth in emerging economies, particularly China,
India and Brazil, should mitigate the downside risk to Canadian commodity
exporters.
Foreclosure Figures in Canada:
Foreclosure rates in Canada are expected to increase, but remain very
limited, especially when compared to the U.S. experience, where a broad
structural failure of the credit system occurred. Canada's relatively
insignificant subprime market, and in turn, the low number of Canadians
contractually committed to very risky mortgages, should result in a
foreclosure rate of insufficient volume to impact house prices or transaction
activity.
Employment Rates:
Across the country, employment rates are expected to erode somewhat in
2009, but remain at long-term healthy levels. Some areas in Ontario, and to a
lesser extent Quebec, that have high levels of manufacturing jobs, may
experience greater than national average unemployment. Areas in Alberta tied
to the energy sector may see short-term employment declines, but the
province's tight overall labour market is expected to mitigate the downside.
Interest Rates:
The Bank of Canada's overnight target-lending rate, already at very low
levels, is expected to be reduced again early in 2009. This should bode well
for home buyers in 2009 as loosening credit spreads allow banks to offer more
aggressively priced mortgages.
2009 Market Survey Forecast - Average House Prices
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2009 2008
Market 09/08% Forecast Projected 2008/2007 2007 2006
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Halifax 1.0% $234,300 $232,000 7.2% $216,339 $203,178
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Montreal -1.0% $254,400 $257,000 4.3% $246,500 $215,659
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Ottawa 0.0% $291,000 $291,000 6.6% $273,058 $257,481
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Toronto -4.0% $364,800 $380,000 0.8% $377,029 $352,388
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Winnipeg 4.0% $204,900 $197,000 20.5% $163,500 $151,983
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Regina 6.0% $243,300 $229,500 38.6% $165,613 $131,851
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Calgary -1.0% $402,000 $406,000 -1.9% $414,066 $346,675
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Edmonton 0.0% $333,000 $333,000 -1.7% $338,636 $250,915
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Vancouver -9.0% $540,100 $593,500 4.0% $570,795 $509,876
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Canada -3.0% $295,000 $304,000 -1.1% $307,265 $276,974
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