When the residential real estate market stops soaring, it will be with a correction, not a catastrophe, predicts the president of a national firm.
Demographic factors are at work as well as economic ones, says Gary Hockey, president of Coldwell Banker Canada.
The first demographic factor is the nine million Baby Boomers in Canada, born between 1946 and 1964.
The Boomers’ parents grew up in the shadow of the Great Depression of the 1930s and became great savers. Without looking at the situation morbidly, the Boomers have or soon will inherit that wealth. The Boom generation is also the first in which it was socially acceptable for both husband and wife to work outside the home. So the Boomers have paid off their mortgages ahead of any other generation, he says.
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| Gary Hockey |
“The typical Boomer with grown children can even take some equity out of the home and help the kids buy their first house,” adds Hockey. Even if those kids, the Echo Boomers, have to pay their parents back, it’s cheaper than paying the banks.
Canada is also welcoming immigrants, jobs are increasing and consumers are confident.
With the stock markets ailing and interest rates at their lowest in decades, the Boomers’ wealth is flowing into residential real estate.
Real estate has historically been a resilient investment. “It’s not a sexy investment; it’s plain old bricks and mortar,” says Hockey.
Unless something unforeseen happens to push interest rates up dramatically, real estate will continue to be an attractive investment. Listings are increasing, which usually causes prices to go down or level off. In this case, demand is keeping prices up, he says.
Hockey points to figures from the Canadian Real Estate Association, showing new listings in Calgary in October at 2,890, an increase of 15.2 per cent from the previous year. The average price was $201,316, up 10.8 per cent from October 2001. The average resale dwelling in Edmonton sold for $150,397, up 12.2 per cent from a year earlier, while new listings numbered 1,923, up 26.2 per cent. Unit sales rose six per cent in Calgary and fell 13.3 per cent in Edmonton.
Vancouver and Toronto, by comparison, had average price increases of six per cent and 11.3 per cent, respectively.
For the first 10 months of the year, sales were almost steady in Edmonton at 14,074, an increase of half a per cent. They rose 13.2 per cent to 21,721 in Calgary.
The average selling prices for January to October were $149,677 in Edmonton, up 12.8 per cent from the same period in 2001; and $197,277 in Calgary, up 8.4 per cent. New listings for the period rose 2.8 per cent in Calgary and 1.3 per cent in Edmonton.
For the first 10 months of 2002, prices rose five per cent in Vancouver and 9.9 per cent in Toronto.
Hockey says there are some dimmer spots in the picture, including economically depressed areas and areas in B.C. that have been hurt by the softwood lumber dispute with the United States.
Eventually, the stock markets will rebound and will once again attract investment money.
The real estate market will have a correction, but it won’t be a tragedy, says Hockey.
In a market such as this, a five- or six-per-cent correction isn’t a disaster. The evidence refutes the idea that the real estate market is in a bubble, ready to burst with a dramatic downturn.
“There is nothing standing out as a threat to burst this so-called bubble that everyone keeps trying to predict,” Hockey says.
Meanwhile, another real estate company believes the slowdown may already have struck.
Century 21 Real Estate Canada Ltd. says its brokers are reporting slower sales this month than in the previous three Novembers.
“There’s a finite number of people who want to buy houses, and I think we’ve reached it in many regions,” says Don Lawby, president of Century 21 Canada. Century 21 says its brokers in 21 major markets expect a return next year to the stable market last seen in 1998.
There will be exceptions in some regions due to local economic conditions.
Residential unit sales will drop 10 to 15 per cent and price increases will match inflation.
“I’m not suggesting that the bubble will burst, because there’s been no bubble in the Canadian real estate market,” says Lawby.
The value of building permits fell across Canada in September for the second month in a row, Statistics Canada reports.
Municipal permits for housing construction declined 4.4 per cent to $2.4 billion, mostly due to a drop in intentions to build multi- family buildings. Non-residential construction decreased 11.3 per cent to $1.3 billion.
The roaring housing market across the country powered a huge increase in permit sales for the first three quarters of 2002.
The total value of permits was $34.4 billion for the first nine months, a rise of 16.4 per cent from the same period in 2001, the national statistical agency reports.
Residential permits were up 35.2 per cent but non-residential permits were down 6.5 per cent. The biggest increases in dollar value were in Toronto, Montreal and Calgary.
Housing starts jumped 10.4 per cent in October from September on a seasonally adjusted basis, the Canada Mortgage and Housing Corp. reports.
Urban multiple-unit construction starts rose 21.4 per cent to an annual rate of 84,100 in October from 69,300 units in September. Urban single-family starts rose 6.9 per cent to 112,400 units from 105,100. The seasonally adjusted annual rate for all housing starts was 220,400 units in October, compared to 199,700 in September.
