Real Estate Market in Canada: Better Times Ahead
// August 27th, 2009 // Real Estate
When the US real estate bubble burst some two years ago, innumerable Canadian home owners, perspective buyers and professionals began to ask: ”What will happen to the real estate market in Toronto or Canada in the future?”
We can identify two main reasons for such fears. First, Canadian property market, as our whole economy, has intensive attachment to the circumstances in the USA. Second, Canadian property business development in the years 2006 and particularly 2007 indicated the eventuality of a analogical bubble here. So what is the situation nearly twelve months after this?
I personally count myself among the optimistic part of the population, but clearly between years 2008 and 2009 we were only a small group against much more people who saw things quite pessimistically. The sales indicators from each month showed a huge fall, which culminated at -47% in confrontation to January 2008. So it’s apparent that the “depression panic” from autumn 2008 has hit Canada. No wonder that most Canadians were worried about making any crucial financial decisions, resulting in the property market almost coming to a halt. Under these circumstances, some “experts” foretold Canada facing similar collapse as in the USA. Nevertheless, the reality seems to be quite far from these forecasts. Let’s examine the 2009 statistics.
Number of sales and year-to-year change
These belong to the most characteristic and closely observed indicators. Looking at these indicators, it is apparent how the business froze in during the winter months. Nevertheless, the sales in June sprang to more than four times of the volume in December. In the first six months of 2009, the first month when we could see the sales volume growing was May, in comparison to May 2008. And in June, with its +27%, we could declare that the Toronto property market has fully recovered.
Days on market
Another important factor. While the previous ones draw the volume of the market, Days on market indicates the speed and freshness. This indicator is important because from the whole market volume numbers we cannot tell how long it would take for your property to get sold – it just gives us another viewpoint of the same problem. In January, during the most problematic spell, an average property stayed on the market just 14 days longer. Confronted with South Florida or Detroit, where days on market value reached 120-150 days, our slowdown was ridiculous.
Active listings flow change
We can estimate the atmosphere of the housing market when looking at this number. It is based on focusing on the number of new listings on the market. If the home owners are worried that their property price would go down and they want to save their investment, the inflow is naturally growing, while the opposite situation is generally considered as a good time to buy property. The future of other market’s indicators can be predicted from the active listings flow change. For example the positive change after January was understood as a market turn signal.
Average price
This one usually draws the greatest attention from my real estate clients. Usually, one of the greatest items on people’s property list is their house, which means that each market change can result in the owner getting thousands of dollars more or less. When the prices declined in autumn 2008, already the next April they increased back and higher.
What is the reason for such good outcomes?! We can still find bad economic news nearly every day. So how can we explain the fact that the housing market has improved so fast? There are two crucial arguments:
1. Failed expectations
The collapse of the US housing market was witnessed by many Canadians, who then expected the same would happen in their country too. Anyway, the major cause of the United States problems was in the subprime sector, and we have to realize this. Few defaults at the start created a chain reaction. In the beginning, the prices declined. Therefore, toxic mortgages could not be covered by foreclosures and short sales. Logically, the banks had to throw more foreclosured houses on the market, which resulted in the prices dropping even lower. I dare to say that Canada has a very healthy financial system, which in connection with very limited subprime sector where there are only a few foreclosures occuring makes our housing market a secure one. Homeowners realized this fact very soon and relaxed.
2. Stabilized economy and buying opportunities
Have a quick look at inflation, unemployment, GDP predictions and interest rate numbers. If we look at the real estate prices explanation, we can clearly see the importance of these numbers for the real estate market. We can clearly see from these statistics that even though our economy is slowed and stagnating, it is still quite far from a collapse – although of course the figures could look even more favourable. This was another reason to stop the real estate panic from winter.
Conclusion and the future
Toronto real estate market has first very well sustained the pessimistic mood during the winter months, and then it has got well very quickly. Now it is increasing again and condo resale market can be even evaluated as hot in the present. Low interest rates and reasonable prices after “one year break” offer great opportunity especially to first time buyers. Now it is also good time for investors to pick some cherries, as their prices still haven’t recovered. Sellers can relax too – the market is quick and their property will be sold probably within a month for a decent price. But we have to bear in mind that there is still some uncertainty pertaining and that the labor market is not quite up to its previous speed. If we take all this into consideration, we can conclude that in the next few years, a bubble is unlikely to create and that prices will probably grow only slowly. June’s 27% was rare, but this means the market is trying to catch the lost months and we can expect stabilization soon. Even in wild times, Toronto housing market represents a firm base for the economy of the whole Ontario country.
