Federal Gov't Adjusts Economic Forecast

Finance Minister Jim Flaherty has recently announced an downward adjustment in the anticipated growth of Canada's economy from 1.7% to 1.1%. This forecast will be used to prepare the federal budget for February 2009. 

The government has been monitoring events in the US. Weaker US consumer demand, continuing finacial/banking sector weaknesses and other global economic factors are impacting on Canada's economy. This adjustment brings the government forecast more in tune with private sector opinions and the Bank of Canada's outlook.

What does this mean for the Real Estate market?

In my opinion there is a double edged sword. In one stream the erosion of consumer confidence could dampen a Real Estate market that is currently preforming in an area of balance. On the other side weakening consumer confidence in equity markets and other investment vehicles could influence investors into real estate.

Keeping in mind a global perspective, Canadian Real Estate,  from an afforbability viewpoint is very well positioned and attractive to foreign purchasers. We are witnessing an ever increasing interest from foreign buyers in acquiring Canadian real estate. One prime motivator for foreign buyers is the lack of affordability in their domestic real estate. Take Great Britain as an example. Housing values have rapidly outpaced those in North America. ( see chart below) The question remaining is, will these global factors counter balance the weakening domestic consumer's appetite for large purchases?

For a better image of the graph below visit www.ipscap.co.uk/documents/HowLowCanBritishHousesGo.pdf

 

I beleive the answer is yes. Evidence to this is that as most real estate markets are experincing a rise in housing inventories and a decline in unit sales, they are simoultaneously witnessing a continued increase in average home prices. This increase is not accelerating at an unhealthy pace but rather it is ocurring in specific price ranges and property categories. This suggests that there is healthy demand for choice locations, and properties that offer minimal updating or cash infusion by buyers after acquisition.

 

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