The Globe and Mail recently ran an article titled 'A return to the old normal' to describe real estate in Toronto. Many might agree that the title is an apt description for numerous regions across the country.
Real estate by the numbers
Following the record pace set in 2007, analysts continue to make sense of the current state. Data released last week by the Canadian Real Estate Association showed that as of the end of July, existing Canadian home sales through MLS in 2008 were down 13 per cent compared with the same period in 2007. The average sale price was up 2.2 per cent to $338,586.
In its third-quarter Housing Market Outlook, the Canadian Mortgage and Housing Corporation (CMHC) forecasted a decrease in Canadian residential construction to 215,475 units in 2008 from 228,343 in 2007. Existing home sales are expected to fall by 11.9 per cent. However, for both 2008 and 2009, MLS price growth will remain above inflation with increases at or above 3 percent each year.
Calgary, one of the biggest boom markets of last year, has had a year-to-date decrease of 30.1 percent, and the average price decreased by 0.1 per cent from 2007 levels. The Calgary and Edmonton markets are considered to be well into their correction and should stabilize ongoing.
Analysts are reminding us that national numbers are reflective of 2005 and 2006 levels, which are regarded as very positive years for real estate, and that overall, real estate is predicted to show solid but more modest single-digit gains in the next few years.
Does buying make sense?
Absolutely, provided the right approach is taken. Financial experts are adamant that buying a home versus renting is a smart investment. Rather than giving money away, you have the option of paying into your own property and over the medium and long term, building equity. This buy versus rent strategy is as smart as it ever was.
Canadian economic managers are cautious in their approach, and have taken steps to protect our collective interests by making it slightly tougher to borrow money. The federal government recently announced that as of Oct. 15, 2008, the CMHC will no longer back 40-year mortgages or insure zero-down mortgages. This move is also meant to ensure that Canadians do not follow the path of our American neighbours with the sub-prime mortgage crisis. This still leaves many borrowing and repayment options that can make buying a wise investment.
The economy is holding. Statistics Canada recently reported that the economy rebounded in the second quarter after losing ground in the first quarter. Gross domestic product increased at an annual rate of 0.3 per cent in the three months ended June 30, after it contracted by 0.8 per cent in the first quarter. Employment levels are still strong and overall the financial picture is sound.
The current market is much more favourable to buyers.
According to the Canadian Real Estate Association, we're facing a far more balanced market than we did last year. With more homes to choose from and lower turnover, buyers can afford to take their time and negotiate more. Sellers are also pricing their properties more competitively than in past months.
Finally, consider that every time a new car is sold, its value depreciates the moment it leaves the lot. Nonetheless, many of us continue to buy new cars. With home purchases, there are natural trends that prevent constant increases, but this is quite unlike depreciation. The value in homes will prevail over time, if we're patient enough to wait for them.
Real Estate Trends
CMHC Third Quarter Housing Market Outlook
Globe and Mail, August 29/08