Is it the HST? Creeping interest rates? High prices? Something is killing the Canadian real estate market - Canadian real estate sales have dipped sharply – and expectations should be following suit.
A year ago, Canadians marveled at the strength of the property market here. Prices and sales were up, while we noted quite smugly, that Americans were seeing record declines and price erosion in their real estate listings.
What a difference a year makes.
In 2009, Canadian home prices jumped 19% over prices from 2008 – compare that to 2010, when prices have risen a comparatively modest 5%, but sales are way, way down – as much as 40% in some markets. Meanwhile, the Canada Housing and Mortgage Corporation announced that housing starts are down again – falling for a third straight month, more than 10% from their peak in April.
Clearly demand is down, but prices aren’t set to follow suit. Statistics Canada is anticipating that housing prices will rise by an almost imperceptible 0.3% in June – making that the 13th straight month that housing has gotten more expensive in Canada. The Canadian Real Estate Association (CREA) is predicting a 7.3% decline in sales for 2011, but still expects housing prices to rise.
So, what’s going on in a formerly red hot market? A slowing economy, rising interest rates, and according to many realtors, the HST in BC and Ontario (two of Canada’s biggest housing markets) have all combined to make people re-asses their decision to buy real estate.
Unfortunately, as these factors aren’t poised to go away any time soon, which means that Canadians might need to get used to a… stable property market.
Over the last ten years, a booming economy and then unprecedentedly low interest rates pushed many people to buy homes and investment properties – statistics from CREA show that the average price of a house more than doubled in the last decade – climbing an incredible 110%. However, going forward, the housing market might be much closer to the 1990s than the 2000s, if you ask Don Lawby, the Chief Executive of Century 21.
According to Lawby, the 1990s had a steady real estate market: prices rose every year, due to real factors like inflation and natural market demand, but not factors like impending taxes, mortgage rule adjustments and speculators trying to get huge returns on their investments.
Is a stable property market bad? No – it’s probably better. People selling real estate will need to adjust to the fact that property may not be the get rich quick scheme it once was, but more buyers may be lured out of the woodwork, enticed by the safety of a stable market which promises no big gains, but no threat of huge equity destroying corrections either. For years, everyone wanted to buy real estate to see how big they could win – those with a lust for gambling might just have to go back to the stock market.
Image: Canadians might just have to get to a market that rises slowly and steadily.