The Canadian Real Estate Market

Since 1980, the Canadian real estate market has grown at a compound annual growth rate of 9.7%. The Canadian market ha been very resilient, with only two significant downturns occurring prior to 2008, in 1990 and 1995, both of which returned to pre-downturn levels within 24 months. The duration of these market downturns were 13 months and 14 months, respectively, with decreases of 26% and 21%, respectively. The market declined 18% during the 16-month period February 2008 through May 2009 and has been experiencing year over year increase thereafter.

During this recent downturn, the most significant decline occurred during the fourth quarter of 2008, when the market decreased 40% when compared to the fourth quarter of 2007. The market improvement in 2009 began with the rate of decline moderating steadily from January to May, followed by four months of increasing market growth, and subsequently ending the year with very strong growth of 90% in the quarter over the same period in 2008.

We expect Canada’s residential real estate market to remain unusually strong throughout the first half of 2010 as economic conditions across the country improve and the stimulus of low interest rates continues to stoke demand. A number of factors are expected to bring the market back into balance in the second half of the year, when the rate at which home prices are appreciating is expected to moderate considerably. These factors include the gradual erosion of affordability driven by higher house prices and the expected modest upward movement of interest rates, and an improvement in listings supply as more Canadians feel confident in the economy and are prepared to list their homes and move. The tighter standards for mortgage approvals and other similar measures to be implemented this spring by the federal government will contribute to moderating demand. We support these modest measures designed to help protect consumers from becoming overleveraged.

The Canadian Real Estate Association (CREA) has forecast that MLS activity will increase 13.3% to a record level in 2010 and that the national average home price will increase 5.4%, with average price gains forecast in all provinces. Over the second half of the year. CREA expects national activity will trend downward as pent-up demand is reduced, interest rates begin rising, and the harmonized sales tax comes into effect in Ontario and B.C. Looking to 2011, CREA expects the average price to decline by 1.5%, with modest average price gains in all provinces except B.C. and Ontario.