The Real Estate Market

Since 1980, the Canadian residential real estate market has growth at the compound annual growth rate (“CAGR”) of 9%, based on transaction dollar volume. The Canadian market has been resilient with only two significant downturns occurring prior to 2008 – in 1990 1995 – both of which returned to pre-downturn levels within 24 months.

Following record housing prices and units sold in Canada during 2007, the market’s transaction dollar volume declined by 17.6% in 2008 to $131.9 billion. The Canadian real state REALTOR® membership grew by 2.8% to 97,168 members in 2008, compared with 6.3% growth in 2007.

This slowdown in housing markets that began in the last quarter of 2007 reflects the end of an expansionary period for Canadian housing that goes back to the start of the decade. The market toward the start of 2009 was susceptible to further retreat in the midst of a Canadian recession and global economic uncertainty. In February 2009, the Canadian Real Estate Association (CREA) projected a 6.4% weighted average drop in average MLS home prices and a 16.9% drop in national MLS unit sales activity during 2009, followed by steady prices and a 9.9% rebound in unit sales in 2010, with most of the increased activity in the second half of 2010.

Real estate markets in Canada are being affected by a drop in consumer confidence resulting from widespread economic concerns, originating largely from the U.S. credit market crisis that has spread globally and has diminished the value of a range of asset classes. The sharp drop in commodity prices has affected Canadian resource-based regional economies, as have layoffs in manufacturing-based regions. Canadian real estate markets are closely linked to consumer confidence.

A reduction in unit and decline in transaction dollar volume can have the effect of reducing the number of agents entering the industry and cause some less productive agents to seek other employment opportunities. When markets slow, established brands can gain market share as their reputation and support services make them a destination of choice. The Brookfield Real Estate Services Fund’s three leading brands are well positioned throughout the market cycle.

We maintain confidence in the long-term growth potential of the real estate services industry, and of the Fund, as we implement our multi-brand growth strategy. A market downturn can act as a catalyst for consolidation within the industry as the better capitalized, technologically advanced and service-oriented brands gain market share organically and through acquisitions.