Compiled by Kathy Bevan
At the end of every year, REM asks industry leaders across the country to respond to a question related to the upcoming year in the Canadian real estate marketplace. This year, REM asked:
With news analysts predicting that the U.S. real estate market will continue to be negatively impacted in 2008 by the collapse of subprime mortgages and the subsequent impact on global financial markets…how would you advise Canadian brokers and Realtors to respond to potential home buyers and sellers who are expressing concerns about the impact (perceived or actual) on the Canadian real estate market?
Ted Zaharko
Broker/Owner
Royal LePage Foothills
Calgary
When I talk about the coming year and the residential market I refer to the following:
1. The Canadian economy is strong and in regards to the business of adjusting to the credit crunch that was created by the subprime nonsense in the U.S.A., this issue will be managed. We will carry on, just like we managed after the economic disaster of the early ‘80s. Subprime lending was never available in Canada and it should not have been in the United States either. People just got greedy and now everyone is paying for that.
2. The residential markets in North America were over-heated and certainly no more so than here in Calgary. We predicted an adjustment, we were expecting it and it materialized – so nobody should have been surprised when it happened. In fact, we very much needed a breather from the unrealistic pace the market was on.
3. There has never been room for speculators in the residential market and they appeared again. As a result, we have non-resident owners dumping their product on the market. When that clears out – it should take to about the end of the first quarter, or perhaps four months into the New Year – we will have a solid, balanced market. Something dramatic has to be done about speculation in a shelter market.
4. I am assuming that there are not many places in this country where folks are predicting fewer sales and lower average prices from what they were in the month of October ‘07 – both prices and sales should increase around two to four per cent.
The residential market will continue to be a healthy place for buyers to have faith in. Prices will most definitely continue to rise. The real issue is, where can the first-time buyers find affordable accommodation? That doesn’t sound like doom and gloom to me…If we want to dwell on the past it will be a factor, but solid citizens need mortgage financing and they should always have access to it.
Elton Ash
Regional Executive Vice-President
Re/Max of Western Canada
Kelowna, B.C.
My response to consumers, when asked about what will happen to the market here in Canada relative to the U.S. experience, is to dig deeper into what is actually happening, rather than to simply believe the headlines from the U.S. media on the real estate market.
There is no doubt that the U.S. real estate market is experiencing challenges at this time, especially in the Sun Belt states such as California, Arizona and Florida. However, the current U.S. experience is really very regional in scale. For example, the Pacific Northwest is experiencing a relatively stable market.
Any indirect impact felt in Canada will be a result of the psychological impact the U.S. foreclosure headlines can have. It is human nature to see these types of headlines and automatically pull back with caution.
Of course, there is no way to accurately predict the future – all we can do is look at the present environment and assess from that what will likely happen.
We know that the Canadian economy continues to perform very well. We know that we are at all-time high employment levels. We know that interest rates are very attractive and stable. We know that our mortgage lending practices and policies are substantially different than in the U.S. We also know that, due to the increase in home prices, housing affordability is an issue for first-time homebuyers. It would also make sense that, due to the year-over-year increases in home sales and prices that we have experienced across the country, unit sales and prices will stabilize for a period of time.
Given that information, there is nothing on the horizon that would suggest we will experience a price correction similar to that being experienced in some parts of the U.S. Resale and new home listing inventories will increase across the country, as project, custom and spec homes reach completion and buyer pent-up demand has been satiated, for the most part.
All this points to our experiencing a stabilizing of the marketplace as price appreciation slows or, in some cases, a transition to a buyer’s market as the inventory is absorbed in the New Year.
However, in those cases, once the inventory is absorbed through the first quarter of 2008, real estate markets will be in a balanced position for the rest of the year. This will result in prices stabilizing or more conservative increases than what we have experienced in the past two years.
Ultimately my advice to anyone thinking of making a move is for them to look at their personal state of affairs – make the decision based on that. Prices within local markets are always relative, as price differences remain constant. If your job is stable and the monthly payments are within your affordability comfort zone, then go for it. It is impossible to time a move in concert with prices moving one way or another.
Sandy Rutledge
Broker
Domus Real Estate
Halifax
When you read that the subprime write-down is currently standing around $65 billion US and expected to triple before the crisis is over, that is a lot of money. It has and will have a ripple effect in all financial markets across the world.
On the homes front here in our local market however, it has had no or minimal impact. In our local market, we do not have the mega builders like in the U.S., where they have large blocks of homes complete and ready for market even if there is no market for them. So the builders, lenders and to some extent the Realtors create a market by the use of creative financing, which qualifies buyers who perhaps otherwise would not be able to purchase a home. It’s a risky business if there is an increase in rates and the buyer no longer can manage the payments, therefore dumping the home back into the marketplace and exacerbating the problem.
I go through the basic reasons for the problems in the U.S. as an explanation as to why this is unlikely to happen here. Our local economy is very healthy, with a low unemployment rate, a growing business community, a growing population and low interest rates. Depending on who you want to follow on this topic, we may see even lower interest rates or at the very least stable rates throughout 2008. A reduction in the cost of building materials may be possible, since our exports to the U.S. will likely continue to struggle due to the high loonie.
From my perspective, the U.S. subprime problem is just that – a U.S. problem. The clients I am dealing with and the general feeling in our office is that it is a non-issue. We rarely have questions from buyers or sellers as to what if any effect the subprime situation will have on them personally.
We have a more or less balanced market here in Metro (Halifax), which is favourable to both the buyers and the sellers, and all indicators are that it will continue for 2008.
Dick Oakes
President
MaxWell Realty
Calgary
It is my opinion that the subprime challenge in America will not spill over into Canada. We are just smarter in the Canadian mortgage business.
Generally our mortgage brokers do not lend money to mortgagors who cannot repay the loan. I suggest that larger commercial loans will be more difficult to obtain, as they are often done internationally. America will go into a recession in 2008. With 78 per cent of all exports destined for the U.S., an economic slowdown will directly affect central Canada. Buyers need to pay attention to regional disparities.
In the four western provinces, I suggest to buyers that they buy. Buy now. The commodity markets are strong and will get stronger, which will propel housing prices to increase a minimum of six to nine per cent on the Prairies. There is no bubble here.
And may I add, the loan losses at the American banks are only just starting to be understood and disclosed. There are huge write-downs coming, which can foreshadow great buying opportunities for the patient buyer. If you have been waiting to buy a sunshine recreational property in Arizona or New Mexico, by example, wait until near the end of 2008. Then pounce!
Western Canada needs people, lots of people to fill the vacant employment positions. The migration will come from central Canada and will support a strong mortgage and attendant housing demand.
The mortgage interest rate will have decreased by 50 basis points between December 1 and the time you read this. That will spur on the market in late January, to the pleasure of any Realtor smart enough to corral as many properly priced listings as possible. That means resisting the sellers wanting to obtain a 90-day-old asking price so they can finance a new set of false teeth and a trip to Hawaii. Next year – 2008 – will be a decent year to be a Realtor.
Paul Legault
President and CEO
La Capitale Real Estate
Laval, Que.
The Canadian market and U.S. market must not be compared. Here are some reasons why the U.S. environment is not going to replicate in Canada:
1) Contrary to the U.S., mortgage loans from a Canadian financial institution that represent 80 per cent or more of the property’s value must be insured.
2) The percentage of subprime mortgage loans in the U.S. is approximately 22 per cent, compared to five per cent in Canada.
3) Contrary to the U.S., housing prices have not exploded. Prices have gone up, but at a much lower rate than in the U.S.
4) Canadian financial institutions have much stricter standards than the U.S., where one hears that even an individual who is unemployed or who has just declared bankruptcy could obtain a mortgage loan.
5) The main fundamental economic indicators in Quebec remain good (construction for new houses, number of resale units and controlled price increases). For 2008, we foresee a similar number of transactions as in 2007.
Don Lawby
President and COO
Century 21 Canada
Vancouver
As we look across the Canadian marketplace we see a continuation of a strong market. At the same time, there is an increase in inventory in a number of major markets in Canada. As we move towards 2008 and take into consideration the current U.S. environment, as it relates to the Canadian inventory and the financial markets, I cannot help but believe that the negative press consumers are continually bombarded with will have some impact.
I am confident that there will be a continuation of a strong economy in Canada. As well, with our currency no longer approaching $1.10 U.S. but more in line with par, I am comfortable in saying to buyers and sellers that our economy today, and therefore the real estate industry, is not as reliant on the U.S. market as it used to be.
We have, over the last decade, established strong trading relations with other countries around the world, with an emphasis on the Asian markets, which continue today to see strong economic growth; therefore, we should feel somewhat comfortable with our outlook for 2008. This continues to be confirmed by the strength of our dollar as it relates to a number of other currencies, including the U.S. In addition, the housing sector in the U.S. has been and continues to be affected by the lending policies which, to some degree, have been impacted by homeowners taking advantage of mortgage interest deductibility from income tax. This has allowed homeowners to purchase non-residential real estate items such as cars, vacations, etc. with before-tax dollars as a result of borrowing against their homes.
In addition, the U.S. market in many areas had seen spectacular growth and appreciation in the five or six years prior to early 2006; therefore investment speculation and 100 per cent financing were common. These conditions have not applied in Canada, thus making our market more stable, which gives me the confidence to predict a very good, but not record-breaking real estate market across the country. We see units reducing by five to seven per cent, depending on area and local economic conditions, and prices increasing by cost of living plus three to five per cent – a stable environment for all of us to take advantage of.
Ann Bosley
President
Canadian Real Estate Association
Toronto
Our members have been facing questions about subprime and a housing market collapse since the summer, mainly because the majority of us hear U.S. news before Canadian news. In response, CREA produced a “Subprime Primer” for Realtors to use in explaining the issues to clients. In preparing that document, we discovered several facts that show the difference between the Canadian and U.S. housing markets, and why they’ve gone in different directions.
Confusion over what the subprime market actually is, has caused many Canadians to panic unnecessarily. They think the so-called subprime crisis in the U.S. will spread to them because their mortgage is at a floating rate below the bank’s prime lending rate (hence subprime). Unlike the U.S., the Canadian housing market has not been artificially driven by questionable lending practices. Our long-term housing market fundamentals are solid. Canada has a growing population. Our energy and commodities are in high demand, and job creation is strong.
At a recent housing conference in Ottawa, it was revealed that longer amortization mortgage products have a growing share of monthly mortgage originations, particularly in the high-ratio mortgage segment. According to TD Canada Trust, 35 to 40 per cent of mortgages approved in Canada in 2007 have had an amortization period of more than 25 years. The conference delegates were told that 75 per cent of those who took the longer-term mortgage actually qualified for the 25-year term, but opted for the longer payback period because of lifestyle considerations. Most of those on the extended mortgages also opted to pay bi-weekly, in effect reducing the amortization period to 31 years.
Compare that to mortgage defaults in the U.S., which are still growing. It is estimated that one in four American subprime mortgages will be in arrears by June 2008, and this is making financing harder to come by for American consumers. While subprime loans accounted for more than 21 per cent of American mortgages by June 2007, in Canada they make up a mere five per cent of the market. As of July 31, 2007, according to the Canadian Bankers Association, less than a quarter of a per cent of Canadian mortgages were in arrears, a record low.
Concerns about a subprime crisis “backlash” in Canada were fueled again in late November, when officials of the Caisse de dépôt et placement du Québec, Canada’s biggest pension fund, announced they had invested $13.2 billion in commercial paper based on subprime mortgages. Executives told a committee of Quebec’s National Assembly that what constituted a crisis was open to interpretation, and they believed the financial institutions would honour their commitments.
That’s why, if there is any impact of the U.S. subprime crisis, Canadians will see it in three different ways. The first will be a tightening of credit markets, as lenders move to correct their losses because of the investments in commercial papers. To borrowers, this may also mean smaller discounts off the posted mortgage rate.
The second is more of an overall economic impact. The slowdown in the U.S. will mean less of a demand for softwood lumber or Canadian-made furniture. There may be a slowdown in some business sectors related to housing, and that may impact Canadian consumer confidence. Like housing, the confidence of the Canadian consumer has been at record levels for several years.
The third impact on our economy could come from the end of the American homeowner wealth factor. As house prices rose in the U.S., consumers borrowed against the value of the home. Falling prices in many markets have brought that practice to a halt. It means consumers don’t have the financial resources for other large ticket purchases that involve Canadian-made products – the auto sector is a good example.
CREA’s chief economist says the Canadian housing market will slow down a bit in 2008, but that slowdown will be nothing compared to what happened in some U.S. markets in 2007. In Canada, the housing market has been setting records for volume and units sold for five consecutive years. We believe things are just moving back towards a more “normal” growth pace, but that still means the 2008 MLS home sales activity will be the second highest on record, second only to the overall record set in 2007.
CREA’s market analysis for 2008 also does not show any dramatic adjustment in the average MLS residential price, again contrary to the conditions in some U.S. markets. CREA’s analysis shows prices setting new records in every province in 2007 and in 2008, but price increases will be smaller in 2008. In effect, price increases will become smaller as the resale housing market becomes more balanced. Manitoba and Nova Scotia are expected to post an increase in average price of seven per cent or more in 2008, while New Brunswick and Newfoundland are expected to show the smallest increase in average price of four per cent annually. The national average residential MLS price is expected to increase 5.5 per cent.
Overall, markets will remain tightest in the western provinces in 2008. Even though Alberta and British Colombia are expected pull back from the blistering pace they set earlier in 2007, housing there will remain in high demand. The days of 25 or 30 per cent increases in average price are over, but prices are forecast to go up in Alberta and British Colombia by 5.2 and 5.1 per cent, respectively.
2008 will be another great year for Canadian Realtors. We have the water, the energy, the oil, the land and most importantly, the confidence of the Canadian consumer.
Joan Malay
Broker/Owner
Regency Real Estate
Halifax
Every morning I open my newspaper, turn to the business section, pour my coffee and settle down to read what’s happening. I check the headlines, look for real estate related items and then go to the stock market. Like everyone else, I read that “the U.S. economy is officially in a funk and Canada may not be far behind” (to quote from the Ottawa Economics reporter in the Globe and Mail). Then I go to page B18 and read the Toronto real estate reporter’s column (after attending a real estate and investment conference), stating that 2008 will be a year for “greed” rather than “fear”, with strong opportunities in Canada. We read about the collapse of the subprime mortgage market. All very informative – and very confusing. How does that really affect the buyer/seller of a house in the urban centre of Nova Scotia or of a home in the Annapolis Valley Region of Nova Scotia?
According to the recent stats furnished by the Province of Nova Scotia, our unemployment rate has decreased and is now at 5.5 per cent. Granted, the higher loonie affects two of our major exports – fish (more specifically lobster) as well as the forest industry (particularly with the export of our famous Christmas trees) – but both are seasonal. Our economy is based on the service sector, with a much smaller portion delegated to industry. When we read about the difficulties in the U.S. market, we are interested, but feel it does not contribute greatly to our well-being…we feel that it’s global, and we think insular.
I talked to John MacKay, of MacKay Real Estate in Wolfville, N.S. and asked him how he would respond to REM’s question, and he said, “Joan, real estate purchasing is an emotional decision.” However, there are still contributing factors (interest rates, employment) that will affect the final decision-making process. There are other areas of Nova Scotia that have a high percentage of American seasonal dwellers – this market will slow considerably, and will be affected by what is still happening in the U.S. with the change in the loonie. In the metro market here, values seem to be still appreciating, particularly in desirable school districts. All of these scenarios will support MacKay’s statement about “emotional decision”.
With the stock market volatility, investment buyers are active and still see real estate as an excellent investment. New discussions with municipal authorities regarding changes in land use are looked upon favourably by the investment community, and these decisions will be based on more practical theory.
Emphasis on the projected availability of mortgage monies at a reasonable rate, the federal budget surplus, and the good employment rate are all persuasive items that consumers should target when in the decision-making process. These facts, added to my comments above, coupled with our more insular way of living, lead me to believe that in Nova Scotia there won’t be concerns expressed by consumers in reference to the U.S. headlines. Consumers just want to know what is happening in their own neighbourhood – do they have a job with reasonable security and can they borrow money at a reasonable rate.
Gary Hockey
President
Coldwell Banker Canada
Burlington, Ont.
The first thing I’d say to my prospects is that, despite all the hype you may have heard in the media, the reality is that 2007 is forecast to be the fifth best year EVER for home sales in the U.S. While there are some depressed markets that have been featured prominently in the news, there are many others that have experienced very little, if any, downturn in their local market. So while the U.S. didn’t match the incredible records seen in recent years, the number of homes trading hands in 2007 still represents a near record number. In fact, sales are on track to exceed five million transactions! The media loves controversy, but that’s what just about anyone would call a pretty darned good year for sales. The simple fact of the matter is that people in the U.S. can…and do…still buy and sell houses, and in great numbers.
And as the U.S. market cooled from its record-breaking pace, home prices edged back slightly from their all-time high of a year before. Is this surprising? To me…not at all. When you consider that most of the U.S. price declines were in markets that enjoyed record run-ups during the bull-run of the last decade, a national correction of two per cent is minimal.
Furthermore, there’s news now that market conditions in the U.S. are expected to improve, and many observers believe they will do so in mid-to-late 2008. Again, there’s little here to concern the Canadian consumer.
Meanwhile, here in Canada, the outlook is bright. Employment is high, incomes have gained, interest rates are still affordable and consumer confidence is high. Our more stringent lending requirements, and a more conservative financial mindset, has protected us from falling victim to a similar subprime lending scenario here. CREA has consistently maintained that the U.S. market adjustment should have little influence on Canada. Now even the financial analysts are echoing what we’ve been saying all along …it should pass us by with little more than a “blip” on our radar screen.
Andrew Cimerman
Founder and CEO, HomeLife Realty Services
and CEO and Chair, Realty World, Red Carpet International Real Estate
Toronto
As a business entrepreneur, with real estate franchising brands in Canada and the United States, as well as several other countries, I believe that I am in a unique position to comment on your question.
At present, Canada is experiencing a sense of independence from the influences of the U.S. economy. Our dollar continues to maintain parity; our rate of unemployment is generally low, as is inflation and – most significantly for us – so are mortgage lending rates. All of these factors, as we all know, help to drive our economy, and keep the real estate market at a healthy pace.
In addition, there are a few substantially different elements between Canada and the U.S. in terms of financing options available when purchasing a home. It is not uncommon in the U.S. for homes to be financed as high as 125 per cent of their value between first and second trust deeds or mortgages. Typically, the first trust deed would be with a very low interest rate, and most of the time, adjustable. The second trust deed would be at a much higher rate, such as 12 per cent.
What is significant to note is what brings about mass non-payment is the rise of interest rates (affecting the first trust deeds immediately). This results in a slowdown of the economy, which spirals into an increase in unemployment, resulting in people being unable to make their mortgage payments. The mass delinquency of mortgage payments, brought about by the increase in unemployment, is what in most cases will trigger mass foreclosures. In addition, mortgage payment delinquencies are most common among the weak ratings borrowers, whose only option was to borrow from subprime lenders, who were willing to lend to the weak ratings borrowers given the opportunity for a greater rate of return. In fact, this market of opportunity was flooded by literally hundreds of financial institutions offering mortgage loans.
We are all much apprised of the Canadian financial and mortgage options borrowings. I wish to point out and compliment Canadian banks – the largest underwriters of mortgages, together with other reputable financial institutions – for always in the past, and continuing to use by and large, much more prudent lending criteria, with substantially lower debt ratios.
The Canadian economy and stable government policies have also had a very strong impact on healthy home ownership. As long as Canada can mitigate – as best as possible – against job losses and government policy stays on course to keep reducing our national debt, Canada will manage to go unscathed by the present financial meltdown of its neighbour. As a result, Canadians should have continued confidence in buying homes, and prudently spending money for a better lifestyle.
Michael Polzler
Executive Vice-President and Regional Director
Re/Max Ontario-Atlantic Canada
Misssissauga, Ont.
After posting extraordinary gains in 2007, housing market performance will moderate in most major Canadian centres in 2008.
The bull market that characterized activity in residential real estate across the country for almost a decade is expected to give way to greater stability in most areas, with balanced market conditions forecast for the year ahead. Gone, for the most part, also will be the urgency that existed in major centres in recent years that led to exceptional price appreciation.
Although healthy conditions are expected to prevail in 2008, the factors most likely to have a negative impact on Canadian real estate next year are as follows:
1. The credit crunch in the United States. There’s no question that the subprime meltdown had a significant impact on the housing sector south of the border throughout 2007. But Canadians have yet to experience any fallout. In fact, despite all the gloom and doom in the market, 62 per cent of major centres in the U.S. showed an increase in median home prices in the third quarter of 2007. The National Association of Realtors (NAR) – the source behind the statistical data – stressed that there is no such thing as a national housing market and some metro areas will be hot, while others will experience localized problems. NAR chief economist Lawrence Yun also attributed some of the biggest declines in sales activity to significant levels of speculative investment.
2. A Canadian dollar at par with the U.S. greenback is expected to impact an already faltering manufacturing sector, particularly in Ontario and Quebec. A continuation of this trend may hamper sales activity in markets where local economies – such as Windsor and St. Catharines – are highly dependent on manufacturing. Yet solid economic fundamentals overall, including significant capital projects, a positive employment outlook, and solid consumer confidence levels are expected to fuel healthy housing activity in most major centres throughout 2008. Job losses in manufacturing are expected to be offset by job creation programs in other sectors.
3. Inventory levels are a prime variable in market performance in 2008. Markets that are over-saturated are just beginning to feel the effect of unbalanced conditions – cases in point are Calgary and Edmonton, where speculators recently tried to take advantage of substantial price hikes and stalled the market. However, despite an influx of new listings, solid economic fundamentals in the western region are expected to support home buying activity in 2008, albeit not at the heated pace experienced in years past.
It is important to note that a return to tight market conditions could mean all bets are off, as buyers are forced to compete, creating increased market pressure.
Joseph Picciani
President
GMAC Real Estate Canada
Woodbridge, Ont.
The fundamentals and strength of the Canadian economy, coupled with strong but sustainable growth in the real estate sector, mean it is highly unlikely that we will experience the type of meltdown the U.S. real estate market has seen and will continue to see for 2008.
My outlook for 2008 is continued growth for the Canadian economy. The strong Canadian dollar, a continuation of the favourable mortgage and financing terms which we have experienced over the past several years, strong immigration numbers and lower unemployment, are all elements which will contribute to a sustained demand for housing, resulting in a positive year for the 2008 real estate market. Furthermore, it is my belief that Canadian real estate, through the years, has been undervalued in several markets and the recent growth has been a correction to that. While there are still markets which remain undervalued, the growth in many of our markets has been real, justified, sustainable and long overdue.
As a prudent measure, consumers should exercise due diligence and caution at all times when entering the real estate market, and should choose to be represented by a professional Realtor who will guide them through the complex process and empower them with the information and support they need in order to make informed decisions.
Scott Shaw
President and CEO
Sutton Group Real Estate
Vancouver
Real estate, as a market, reflects the supply and demand within a specific location or product. Knowing that it operates on the most basic of economic concepts is a plus when questions are posed and analysis needed. The U.S. market is experiencing a slowdown – what effect that will have on a Canadian market should not be answered in broad stroke generalizations.
Drilling deeper one needs to consider the following:
1. Economically, how does a reduction in consumption in the U.S. affect the employment in specific Canadian markets? If the economic driver in the Canadian marketplace is manufacturing with exports to the U.S. or the extraction of a natural resource which is shipped to the U.S., the impact on the specific real estate market will most likely be significant.
2. As for a particular market, a slowdown is not all bad. Most real estate markets in Canada have been operating at activity levels that are described as above normal and robust. These markets are difficult, with buyers, sellers and Realtors feeling anxious and frustrated. A slowdown brings more balance to the supply and demand equation, resulting in less frustration, anxiety and better reasoned decisions made.
3. The swinging pendulum of a market from buyers, to sellers, to buyers is excellent for the industry, because the consumer will look to the professional Realtor to interpret the market, which keeps the Realtor at the centre of the transaction. As for the consumer, the advice is: Ensure you have a professional Realtor representing you.
4. Change produces opportunity; so with a changing market opportunities arise. Again, employ the services of a knowledgeable Realtor to ensure those opportunities do not pass by.
The underlying fundamentals of the Canadian real estate market are very good, with low interest rates, very good financing alternatives, low inflation, a leading currency that is increasing our standard of living and a strong economy, with very good employment statistics. These fundamentals are strong and won’t change overnight, making Canadian real estate an excellent long-term investment. To take advantage of this, use the services of a professional Realtor to work with you, as now is the time to buy!
Bernie Vogt
President, Canadian Operations
Prudential Real Estate
Toronto
Our view is that the Canadian and American real estate markets have taken different paths and will continue to do so in 2008. Forecasts for the U.S. market are universally downbeat, while Canadian markets are calling for some moderation, but overall a healthy environment.
In discussions with our affiliates and customers alike the theme is: Take the time to understand the market you are in. Real estate in Canada performs in many diverse ways.
While one market races along because of the oil boom, another may well have to adjust to the effect of a strong dollar. Clearly there are factors that influence the overall economy – the growing credit changes as a result of the subprime debacle, and a U.S. slowdown, to name two. However, they will affect markets differently.
Brokers and sales professionals operating successful businesses as well as consumers are all watching their local markets and economies. Understanding how these markets react to change will stand them in good stead.
Phil Soper
President and CEO
Brookfield Real Estate Services
(Royal LePage, La Capitale)
Toronto
Canadians are still enjoying what is already the longest housing market expansion in modern history. Blessed with a well-educated population and abundant natural resources, record numbers of people are gainfully employed in our country. Our governments are healthy, with enviable balance sheets driven by falling debt. Although the overall impact on central Canada has been negative, our industrial sector has done an admirable job in adjusting to the high value of the dollar. And the silver lining of our turbocharged currency: In the knick of time, our “super buck” has had a cooling effect on the economy, helping to tame the truly terrifying specter of high inflation and – importantly for the real estate industry – allowing the central bank to maintain interest rates at moderate levels.
The U.S. is entering the third year of what economic historians will undoubtedly regard as one of the worst housing recessions ever. Their economy is straining under the crushing burden of financing foreign wars; governments and individuals at all levels are deeply in debt; and it is becoming increasingly clear that the broad American real estate and lending industry has left many Americans (who should have never qualified for a mortgage) in a position where they have or will default and subsequently lose everything.
It is a sad situation for the millions of people affected, but even in the shadow of this painful U.S. housing correction, there is hope. American inflation levels are modest and interest rates are low and dropping. Employment levels are still healthy and, outside of the real estate and lending sectors, companies are profitable. Furthermore, the falling greenback has made U.S. goods and services cheaper and more attractive to the world. Global demand from Russia, China and India for now affordable U.S. products could trigger a revival in the American “rust belt” as manufacturers invest and hire for growth. Dropping house prices will encourage new demand, unit sales will rise and the U.S. housing industry will begin to claw its way out of its current pit of despair. Not in the spring of 2008, unfortunately, but the medium term outlook for the industry south of the border remains positive.
So the U.S. market will recover, but what’s in store for us in the Canadian real estate industry? The advice we are providing the Realtors in our companies is to plan for a flat market. Barring a full-blown U.S. economic recession, the considerable momentum of a strong second half in 2007 should carry us into the spring 2008 market on a high note, and most Canadian markets will actually show year-over-year growth. That said, the prudent Realtor should put more effort into business planning in 2008, with a focus on reducing controllable costs.
The fundamentals driving the Canadian economy are strong. Although moderation can be expected in the coming year, high employment levels and rising incomes will continue to provide a solid foundation for our resilient housing markets.
Gerard Daly
Broker/Owner
First Realty Company of New Brunswick
Fredericton
The advice I’d give to real estate service providers is to tell the public that we can be of help and are ready to provide input and service – that we are ready to be problem solvers. We can provide traditional or modified services, depending on the circumstances and needs of our clients.
It seems apparent that the default mortgage crisis will impact the U.S. for more than one or two years. Foreclosures will certainly impact existing homes already for sale on the market, and this impact will not be positive. So where does this put Canadian real estate home sales?
Our housing market in Canada, in my opinion, will be driven by mortgage rates and employment rates. Clients (consumers) will want options of choice as well as options of compensation for services. In other words, traditional business models will continue to decline and give way to more flexible contracting of services as well as sharing of workloads. As professional service providers, we must be able to provide real estate services in good and bad times.
In Canada, our mortgage rules and regulations allow for different circumstances. Canadian homeowners, if they have properly prepared mortgages with renewal or opt-in features, may actually have more advantages than they realize. We should encourage those with mortgages to review their documents and understand their options with respect to their obligations and possible renewals or lock-in provisions, as well as alternate providers. Mortgage providers have become more competitive and are interested in good clients and quality real estate.
We need to send the message that we are problem solvers – a large part of the public believes we are part of the problem. Even CREA has sent a message to its membership that we had better stop complaining about others and take a good look at ourselves. If not, traditional real estate industry providers will continue to lose more market share, as that space is quickly being challenged and filled by many legitimate alternative service providers.
