Real Estate Market in Canada: Back On Its Feet

In 2007, when we faced the US property bubble burst, all the Canadian property market participants started to inquire: "How will the circumstances in property market in Toronto or Canada be progressing in the future?"

There were two fundamental arguments for this fear. The first one is based on the intensive relationship of the property market in Canada (and its whole economical situation) with the one in the USA. Second, Canadian housing market progression in the years 2006 and above all 2007 indicated the potentiality of a resembling bubble here. So what is the situation almost twelve months later?

The situation around the turn point of years 2008/2009 intensified the perspective of many pessimists, against us, optimists. If we look at the monthly year to year sales indicators, we can identify a huge decrease with its peak in January 2009: -47% compared to the same month last year. So it's clear that the "depression panic" from autumn 2008 has hit Canada. People were worried to make any radical financial decision and our housing market almost collapsed. Some "experts" looked at the circumstances and prognosed Canada confronting similar crisis as in the USA. Anyhow, the truth doesn't confirm these prognoses. Let me cite some of the 2009 numbers.

Number of sales and year-to-year change

The most representative and closely observed numbers. Looking at these numbers, it is obvious how the market froze in during the winter months. Nevertheless, the sales volume between December and June grew more than four times. May was the first month in this period when we observed sales increase (compared to the same month in previous year) and June's +27% demonstrated the Toronto housing market is back on the horse.

Days on market

Whereas the previous figures draw the bulk of the market, another key number illustrates its speed and freshness. It's the second side of the same coin – the general volume of sales can't tell you whether your house will be stuck on the market or not. In January, during the most problematic period, an average property stayed on the market just 14 days longer. In comparison to other regions such as South Florida or Detroit, it shows that our market was still quite working, because there it took even 120 - 150 days to sell a property.

Active listings flow change

We can estimate the atmosphere of the housing market when looking at this indicator. If the amount of new listings is rising, it usually tells us that home owners are scared that their property price would fall and they want to save their investment. The opposite situation means that the dominating opinion is that this is a favourable time for buying property. The future of other market's attributes can be predicted from the active listings flow change. For example the positive change after January was seen as a market turn signal.

Average price

Cost usually interests my real estate clients in the first place. Your home is the biggest part of your total property and every change up or down means you lose or gain thousands of dollars. The price fall of autumn 2008 was already overcome in April.

Why the results are so good?! We can still read negative economic news almost every day. So how can we explain the fact that the housing market has improved so fast? We can identify two main factors:

1. Failed expectations

Many Canadians watched the collapse of US housing market and assumed the same scenario at home. But we have to realize the basic problem of United States was in the subprime sector. Some unresolved problems and failures earlier resulted in a chain reaction of more serious trouble later. In the beginning, the prices declined. Therefore, toxic mortgages could not be covered by foreclosures and short sales. Logically, the banks had to throw more foreclosured houses on the market, which resulted in the prices falling even lower. I dare to say that Canada has a very healthy financial system, which in conjunction with very limited subprime sector where there are only a few foreclosures occuring makes our housing market a secure one. So the property owners can sleep tight, realizing all this.

2. Stabilized economy and buying opportunities

Now we will shortly analyze the numbers about inflation, unemployment, GDP predictions and interest rates. Housing market largely depends on this numbers, as follows from real estate prices analysis. We can clearly see from these numbers that even though our economy is slowed and stagnating, it is still quite far from a collapse - although of course the numbers could look even better. All these facts also helped to stop the winter real estate fuss.

Conclusion and the future

Not only the housing market in Toronto sustained the negative psychology in winter, but it has recovered very quickly and shows again healthy growth; condo resale market can be even called hot right now. The previous "one year break" has resulted in low interest rates and favourable prices, which means especially first time buyers can enjoy huge opportunities. Now it is also great time for investors to pick some cherries, as their prices still haven't recovered. As the market is quite lively, people who are selling their property can sleep tight too - it is likely to be sold within a month's time for a good price. But we have to bear in mind that there is still some uncertainty pertaining and that the labor market is not quite up to its previous speed. If we take all this into consideration, we can say that in the next few years, a bubble is unlikely to grow and that prices will probably grow only moderately. As the market grew unusually fast in June (+27%), it is clearly getting to catch up for the previous bad months and soon it will probably be steady again. Toronto housing market represents a compact foundation of stability for Ontario's economy in wild times.