Housing markets in Ontario, Alberta and British Columbia are firing on all cylinders as the calendar strikes mid-year, and industry watchers say real estate remains the best place to put investment dollars.
Others, however, question the sector as a viable investment option.
The president of the Toronto Real Estate Board (TREB) says the first six months of 2005 have performed as predicted in terms of housing prices and number of sales, and he expects similar results for the next half of the year.
Ron Abraham foresees average housing prices in the $330,000 range this year, as predicted by Canada Mortgage and Housing Corp. (CMHC).
"We've had a great first half, and I'm expecting more of the same (for the second half of 2005)," he says. "And I say that because I don't see the same potential problems that we faced in the early '90s with the bubble bursting, because we haven't got the same kind of ingredients in the mix."
High employment levels, good jobs and low interest rates are all factors making real estate more affordable, Abraham adds. "The demographics are out there - there are a lot of young people moving into homes, and generally the overall economic climate is still very good."
In Ottawa, meanwhile, the number of units sold slipped during the first five months of the year compared with the same period in 2004, the Ottawa Real Estate Board reports.
The OREB says that 5,664 single-detached homes and condominiums were sold to the end of May, a 6.4-per-cent drop from 2004 when 6,054 units changed hands.
The average house price in Ottawa rose to $244,798 in the first five months of the year from $236,214 in the same period last year - a jump of 3.6 per cent. To the end of May 2005, real estate sales in the nation's capital totalled $1.39 billion.
Don Campbell, director of the national Real Estate Investment Network (REIN), says cities across the country remain ripe for the picking - but some should be avoided.
In Alberta, the prospect of oilsands project money - to the tune of $100 billion-plus - flowing in during the coming decade makes investing in many areas of the province an attractive proposition.
"In the last decade only $38 billion poured in, and we saw what happened to the marketplace," Campbell says, referring to Alberta's recent economic boom and the subsequent rise in home prices.
The real estate-investment expert sees B.C. as a tougher market, with a few gems still to be unearthed.
"What I see is that select cities and towns in B.C. will do great. What we're going to see in B.C. in the next two to three years is a really strong runup to 2008-2009, and then we're going to see some sustainability issues showing up there."
Courtenay/Comox on Vancouver Island, Fort St. John in northeast B.C. and Invermere in the eastern part of B.C. are the stars that shine brightest in the Pacific province.
Vancouver and Victoria are tougher nuts to crack, he predicts.
"If you look at Vancouver, it may not be such a comfortable investment. It's just getting unsustainable," Campbell says.
However, Dave Barclay, president of the British Columbia Real Estate Association (BCREA), says despite the fact average Vancouverites can easily find themselves paying close to half a million dollars for a house (the average price is expected to top $400,000 this year), people have continued to purchase homes and will continue to buy for the remainder of the year and beyond.
He also says people ought to change their perspective when examining the Vancouver market.
"I think we tend to be more tied in with a world economy and a world market, and we're certainly inexpensive compared with cities like San Francisco, or countries like Ireland and Australia - we're still far more affordable than they are.
"I think that people will look back at 2005 and say: 'Gee, we should have bought back then,' " Barclay says.
Edmonton Real Estate Board president Jim Kulak says Alberta's capital is on pace to match 2004 sales numbers and home prices.
However, a larger-than-expected inventory of homes on the market could curtail that price growth.
"For residential homes, prices are about eight per cent over last year," Kulak says. "We predicted around six per cent and so we're ahead of our prediction.
"I think we're going to have a little levelling off and finish the year at six per cent, but it'll still be a very good year in terms of number of sales."
In Ontario, meanwhile, Campbell says real estate investors will find their best value outside Toronto, in areas such as Hamilton, Kitchener-Waterloo and Barrie-Orillia.
"All those cities ... made a concerted effort to increase not only the population but the job base, and that's a substantial thing to look at."
Buoying Canada's market are interest rates, but also greater confidence in the real estate sector.
According to the latest Ipsos-Reid Economic Confidence Index, 15 per cent of Canadians say they are likely to purchase a new or another home immediately - seven per cent said they were "very likely" - while just 17 per cent of Canadians are worried about either themselves or someone in their household losing their jobs.
Investment dollars have been flowing to other areas of the economy, too.
The Toronto Stock Exchange - which last month stepped across the 10,000 basis-point mark for a few moments, its highest level ever - and other stock markets have rebounded following the dot-com bust earlier this decade.
U.S.-based State Street Corp. revealed in a recent survey that investor confidence in equity markets jumped south of the border in May.
According to the State Street index, investor confidence increased by 3.1 points to 84.5, marking the first time that investor confidence had risen since March, when the index reached 93.2.
Ken Froot, a Harvard University professor who developed the index, commented that "... after two consecutive months of substantial institutional winnowing, investors now seem willing to take on additional risk at prices they now find relatively attractive."
However, Chris Fernyc, a portfolio manager with Bissett Investment Management, believes the housing market is more on the mind of the average Joe than is the equity market.
"I don't think I've heard anybody talk about equities as their investment vehicle of choice. It's all very much related to the equity in their house."
Still, Fernyc is skeptical about real estate as an investment tool. He says that aside from the fact a house can be leveraged at 10- or 20-to-one, the long-term return on real estate isn't all it's cracked up to be.
"Let's just call a house a place to live and not necessarily an investment. If we're talking second properties ... diversified mutual funds are way, way, way better on a risk-adjusted basis than a second property for rental income.
"I don't think there's any true value creation in houses," Fernyc says. "For example, a typical bungalow in Calgary that used to go for $185,000 (two years ago) today goes for around $235,000. Have the cost of raw materials gone up? No, not at all."
REIN's Campbell doesn't expect a surge in the equity stock markets will cut into the real estate sector.
"I see there is more willingness (on the part of investors) to take control of their own investments rather than putting money into other people's hands," he notes."I think they are tired of speculation, and I think they do want something that performs strongly."
He adds his client base has more than $1 billion invested in Canadian real estate.
TREB's Abraham agrees.
"People want something they can put their hands on. You buy a house and you say 'This is a great house.' You don't buy a stock and look at the piece of paper and say 'Man, what a great piece of paper I have.' "Real estate is pretty stable relative to other investment," Abraham adds. "I don't see people taking money away (from real estate) any more than they do now. There will always be demand for other types of investments, but I think real estate will always hold its own in any market."
(John Ludwick can be reached at ludwick@businessedge.ca)
