Canada's Housing Bubble

Analysis of the real estate bubble in Canada --

Real estate's down from the peak Print E-mail

Dec 29, 2011 Vito Pilieci The Ottawa Citizen

Ottawa's real estate market is showing signs of finally settling down.

In the new-home sector, builders scaled back in 2011, starting an estimated 5,750 homes (final numbers aren't in yet), compared to 6,446 units in 2010 and 5,814 in 2009, according to figures from Canada Mortgage and Housing Corp. (CMHC).

The pace was the slowest since 2005, when builders started a total of 4,982 homes. According to Sandra Pérez Torres, senior market analyst for CMHC, the decline shows that demand from first-time home buyers, spurred on in recent years by record low interest rates, has largely been satiated. New developments will need to be driven by a different demographic she calls the "move-up buyer: " People looking to start families and buyers in the 45-to-55 age bracket looking for more space.

"Employment for these moveup buyers has been growing this year, when compared to other age groups," said Pérez Torres.

"The move-up buyers are the ones really driving the market, especially in the last half of 2011. We are expecting that to continue into next year."

For the first 11 months of the year, new home sales are down 9.2 per cent to 3,687 units compared to 3,995 in the same period last year. The total is also well below the five-year average of 4,325 units. John Herbert, executive director of the Greater Ottawa Home Builders' Association, has attributed the slide to a combination of a land shortage for building new homes and the federal government's deficit reduction plan. Federal public servants are concerned about their future, awaiting details of proposed cuts to programs, services and jobs to meet the government's goal of trimming $4 billion from department budgets.

Industry experts caution that while the market for both new and existing homes is expected to cool, it's not expected to plunge. Continued immigration, a highly paid workforce and a growing baby boomer demographic looking to downsize into higher-end, highdensity developments should ensure continued demand.

Add to that strong employment numbers, low vacancy rates, steady rental rates, stable price increases and a balanced market for home sales and the city is showing no signs of a housing market bubble, they say. Still, condominiums could be the only market segment in Ottawa to show growth next year.

CMHC expects builders to begin construction on 1,500 condominium projects in 2012, an increase over the 1,475 started in 2011. The market is expected to be driven by baby boomers looking to downsize. According to CM-HC, more than 170,000 people in the capital region are between the ages of 55 and 74.

That demographic made up more than 40 per cent of all condominium buyers in Ottawa last year. CMHC expects boomers to account for as much as 50 per cent of all condominium sales by 2016 as the aging group continues to migrate to smaller homes.

Condominiums could be the only market segment in Ottawa to show growth next year. Construction of townhouses is expected to fall to 2,200 next year from 2,245 in 2011, while single-family homes will fall marginally to 1,850 from 2,000.

More than 80 per cent of all residential construction started in Ottawa in 2012 will happen in the suburbs, outside the Greenbelt.

Pérez Torres said the suburbs offer buyers more affordable housing choices than the downtown area, which is why builders are fighting so hard with municipal politicians to open more land for development outside of the core.

The builders' association has been in a long battle to persuade the City of Ottawa to stretch the urban boundary and free more land for development, a move city council has resisted as it pursues its goal of intensification within the urban core. Earlier this year, the association won a partial victory at the Ontario Municipal Board in getting 850 hectares of land released for development rather than the 230 that had previously been approved by council.

The condominium boom will have an impact on the resale market. As more Ottawans opt for smaller condo spaces outside the Greenbelt, CMHC expects a record number of homes to be offered on the Multiple Listing Service (MLS) operated by realtors.

This will increase competition among sellers and should cause price increases to taper off. The housing agency expects resale values to move in lockstep with inflation, at about two per cent.

Buyers still have money to spend, thanks to the continuation of interest rates at their lowest point in 60 years. CM-HC said rates will likely remain low for most of 2012.

"Sales are strong. Inventory is a little higher than the previous year," Ottawa Real Estate Board president Joanne Tibbles reported. "That actually works out better for people. Realtors can actually work the listings, it gives them the opportunity to work for their sellers. It also gives buyers more of a choice so they don't feel pressured into buying the first thing that comes up."

The average price of a resale home in Ottawa increased 5.4 per cent to $344, 357 in the first 11 months of the year (final 2011 resale statistics won't be released until early 2012). By the end of November, Ottawa real estate agents had sold a total of 13,710 homes, up slightly from the 13,549 they sold during the same time frame in 2010.

Paul Rushforth, an Ottawa real estate agent, says 44 per cent of real estate activity in Ottawa over the past year involved homes priced below $300,000. About the same amount - 43 per cent - involved homes between $300,000 and $500,000. The remaining 13 per cent involved homes worth upwards of $500,000.

Marnie Bennett, another area agent, said as of Dec. 1 a total of 57 properties worth more than $1 million had been sold in Ottawa in 2011.

Most of those sales involved homes, but some condos located close to downtown are starting to hit six-figure territory. Bennett says milliondollar listings were once concentrated in Rockcliffe Park, but now homes priced at a million or more are scattered all over the capital, including areas such as Manotick.

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