Canada's Condominium Magazine
Why do analysts devote so much time to real estate? Because, in a word, it is important. In Canada and the United States, the residential real estate industry, including housing services and consumer investment, accounts for about 17–19 per cent of GDP. This includes construction of single-family and multi-family homes, remodeling, production of manufactured homes (mobile homes), brokers’ fees and other financial and legal services, and insurance. Considering that Canada’s economy is worth more than $1 trillion, and the US economy about ten times that amount, it’s evident that housing in both countries is worth hundreds of billions of dollars each year. In short, it matters.
So how are they doing, these vitally important economic drivers? One insight into the relative vitality of the markets can be had in looking at the way prices are behaving. Rising prices generally indicate market health (but not if they are rising too fast), falling prices the opposite. The Global Property Guide’s most recent analysis of house price statistics for the year 2013 finds that real estate is “booming” worldwide, led by the US and Asia-Pacific region. Housing prices rose in 27 of the 42 housing markets they surveyed. In the case of the US, the market put in its best performance in nine years, with house prices rising 9.37 per cent in 2013.
All over the world the story is similar—New Zealand, Australia, Taiwan, Indonesia, much of Europe, including Ireland. The countries wbere housing markets are not doing so well are mostly in Europe: Romania has the distinction of having the world’s weakest housing market at present, with prices plunging 10.43 per cent, even worse than in Greece, where prices dropped a further 7.26 per cent. Russia, Spain, Netherlands, Finland, France, Norway, Portugal were all in the under-achievers’ club in 2013.
Toronto’s resale market is balanced. Sales stabilized in June 2013, and rose on a year-over-year basis during each of the six months leading up to the end of 2013. Price growth remains healthy and a major price correction is hard to envision, given solid employment and population growth. While the condominium market is at some risk, a soft landing appears to be the most likely scenario.
Conference Board of Canada Housing Briefing
A modest performance from Canada
As for Canada, where predictions of housing market crashes and major corrections are a daily event, the Global Property Guide takes a more moderate view. Pointing out that house prices rose 2.53 per cent in Canada in 2013, “after several rounds of market cooling measures,” the report quotes an analyst at Gluskin Sheff & Associates that the government has achieved the soft landing it wanted. Prices are forecast to rise a modest 2.3 per cent in 2014. This is more or less in line with Bank of Canada projections for growth in the economy as a whole, forecast to grow by 2.5 per cent this year and next.
The Global Property Guide assessment is pretty much in line with a new report on the housing market from the Conference Board of Canada. Though the Conference Board report raises the possibility of a “modest decline” in housing prices, it dismisses fears of a housing bubble as “exaggerated.”
As it has said before, the housing market is tied to the overall economy. In Canada, employment is increasing “albeit modestly,” and population is growing. “In general, housing starts are in line with deoographic requirements, and markets do not appear to be overbuilt. Total housing starts in Canadian cities . . . (are) in line with Canada’s 25-year average.”
The Conference Board takes issue with the “misleading” metrics used by some analysts, such as the Organization for Economic Cooperation and Development (OECD). The OECD has said that Canada’s real estate market is highly over-valued, based in part on the ratio of house prices to apartment rents and to incomes. The Conference Board says that the ratio of mortgage payments to rents and to incomes are “better indicators and much less alarming.” Comparing mortgage payments to rents and incomes yields a better indicator of the market’s sustainability, giving a gauge of what home owners can actually afford to pay on a monthly basis. As a percentage of average household income, the cost of carrying a mortgage in Canada hasn’t changed in twenty years, remaining at about 20 per cent.