Is Another Boom Going to Bust?
The Canadian real estate market has been very strong for a long time. Continued rising prices would appear to be unsustainable, as they can’t continue indefinitely. We learned that lesson in Arizona when our real estate boom busted. But Canadians claim that scenario won’t happen there. Do they know something we don’t, or are they fooling themselves?
Home values have doubled since 2000
The increase in value has been sustained and dramatic. For example, Re/max Canada examined the value of homes in 16 major markets across Canada, calculating the changes that occurred from 2000 to 2010. The report that was prepared showed that the average home value doubled in most of Canada’s big cities since the millennium.
During that decade condominiums, and their type and location, have been especially popular. Buyers have been able to choose from mixed-use residential, live-work studios, lofts, town homes and condo bungalows in major markets.
Canadian home sales edge higher
Activity has increased along with the prices. According to the Canadian Real Estate Association (CREA), in 2011 national resale housing activity rose 2.2% from 2010, and increases also continued to the end of 2011. For example, sales activity rose 1.8% from November to December 2011, marking the fourth consecutive monthly increase, and national sales activity in December came in 4.6% above December 2010.
The number of newly listed homes rose 3% on a month-over-month basis in 2011, with new listings rising in almost 70% of local markets, including some of Canada’s most active.
One of the reasons given for the increases in activity is low interest rates. “The momentum in sales activity provides clear evidence that low interest rates continue to draw home buyers to the housing market,” said Gary Morse, CREA President.
Canada’s housing boom among longest
Canada’s housing boom is among the most long-lived in the Western world at 13 years. The Canadian housing market remains a leader among advanced nations, and was the strongest in the developed world in the third quarter of 2011.
For example, in my hometown of Toronto, home buyers have grappled with a tight supply of properties for sale. This is despite a condo building boom. Ben Myers, executive vice president of Urbanation Inc., a Toronto condominium market research firm, predicted that there will be a record of almost 27,000 condo sales in 2011, about 3,000 more than the previous record in 2007. As of Feb 2012, Myers estimated that there were 43,000 condo units under construction.
Low mortgage rates and high demand have driven housing sales and prices higher, especially in the large urban areas of Montreal, Toronto and Vancouver – particularly in the hot condo market. The heightened competition between buyers, which has included multiple offers in many residential transactions, has sustained the seller’s market.
Doesn’t that sound familiar? Arizona experienced the same conditions during the boom, including the popularity of condominiums. In part two of this blog, read how there are warning signs that the Canadian real estate market may be just like ours in 2005.
– N. Mark Kramoltz © 2015