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Correction, not crash for Canadian real estate market in 2009

Historically low interest rates, stable local economies and increasing affordability should support Canada’s residential real estate market during transitioning period

Canada News Wire

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.

Nationally, average house prices are forecast to dip by 3.0% 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.”

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.


Contact Laurin Jeffrey for more information – 416-388-1960

One Response to Correction, not crash for Canadian real estate market in 2009

  1. Brenda Weiss says:

    The current recession period has not affected Canada to that extent.

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