Poll indicates tomorrow's federal budget announcement, Obama inauguration anticipated to buoy optimism

TORONTO - During the fourth quarter of 2008, Canada's real estate market posted a decline in both unit sales and house prices, according to a House Price Survey released today by Royal LePage Real Estate Services. The combination of a global economy in recession and shrinking employment figures did much to dampen consumer confidence, diminish home sales and cause house prices to drop.

Of the housing types surveyed, the average price of detached bungalows dipped by 4.8 per cent to $319,640, followed by standard condominiums, which decreased by 5.2 per cent to $233,230, year-over-year. The average price of standard two-storey properties fell by 6.3 per cent to $376,140, year-over-year.

While national average house prices decreased, price trends varied dramatically across regional real estate markets. Bolstered by strong local economies, the housing markets in Regina and St. John's posted double-digit year-over-year price appreciations, while the larger cities that have seen the greatest increase in prices this decade, including Toronto, Edmonton, Calgary and Vancouver, recorded declining house prices.

The tumultuous times that characterized the end of 2008 are not anticipated to define 2009. A recent poll commissioned by Royal LePage found that almost half (49%) of Canadians surveyed agree that the economic stimulus measures anticipated as part of tomorrow's Canadian federal budget announcement will have a positive impact on Canada's real estate market. Political actions taking place south of the border are also likely to buoy the country's economic conditions, as the poll found that 82 per cent of Canadians agree that the inauguration of Barack Obama will have a positive impact on consumer confidence in Canada.

"The steady flow of universally dire news that Canadian consumers faced in the fourth quarter has gradually given way to a mixed diet of positive and negative economic indicators," said Phil Soper, president and chief executive, Royal LePage Real Estate Services. "This is clearly having some impact on consumer confidence as nearly half of all Canadians believe the steps the government is taking to stimulate the economy in tomorrow's budget will positively impact the country's real estate market."

Added Soper: "During the fourth quarter, housing markets go through a typical seasonal slowdown, and 2008 was no different. Earlier in 2008, as the country began to experience the anticipated adjustment in home sales, news that Canada would be hit hard by the rapidly expanding global recession caused home sales to grind to a halt in the last quarter. In many regions of the country, those that did decide to sell their homes were faced with a limited number of buyers who could be broadly classified as bargain hunters. What would have been a normal cyclical correction gave way to a sharp reset in housing values."

The inability for real estate activity to continue at the pace seen earlier in the decade comes as no surprise. While the large price increases, bidding wars and brief listing periods that characterized the 'boom' years were driven by solid economic fundamentals including real buyer demand and the ability and willingness to match rising listing prices, they were unsustainable in the long run, particularly if any of the factors that underpinned the economy weakened - exactly what occurred at the end of 2008.

Soper notes that as consumer confidence levels begin to creep upwards, the country's solid economic fundamentals should lead to a recovery in the housing market. "For many people, deciding to hold off on buying a home at the end of the year was an easy decision to make. With consumer confidence in tatters, many were reticent about making any large purchases. However, waiting on the sidelines during the normally slow winter market is one thing, sitting out the seasonally busy spring market is quite a different story. Activity levels should rise as the year progresses." said Soper.

Despite the global and Canadian economic downturn that characterized much of the fourth quarter of 2008, each province soldiered on in their way, and relied on the strength of their local economies to support their housing markets.

While lags in sales and prices were noted in many parts of the country, St. John's real estate market experienced phenomenal double-digit price increases and recorded Canada's highest price appreciation in the fourth quarter. Move-up buyers created an abundance of activity in the housing landscape as stable employment and growing incomes encouraged investment in more expensive properties. Despite disappointing employment news from the forestry sector, the recent announcement that Vale Inco NL is planning to construct a large new hydromet plant, helped to sustain the high level of confidence Newfoundlanders have in their province's economy.

Mirroring St. John's healthy economic activity and fuelled by stable and diverse economies, many cities in Atlantic Canada saw healthy price appreciations at the year's end.

Looking west, Saskatchewan's local economy also weathered the storm, and led to price increases in both Regina and Saskatoon. Finally adjusting to the sharp rise in prices experienced over the past two years, residents of Saskatoon saw much smaller average price increases year-over-year in the fourth quarter. Regina, where recent price increases have been more modest, experienced double-digit house price gains. In both cities, favourable employment rates and consumer confidence levels, and growing population figures, were able to sustain upward trends within the province's real estate market during the last three months of 2008. Also insulated to a certain degree by its strong regional economy, Winnipeg's real estate market saw price gains during the fourth quarter. However, like Saskatoon, the large percentage increases that have characterized the Winnipeg market in recent years have given way to modest single digit price appreciations.

The cities in which real estate prices appreciated most quickly over the last few years, including Toronto, Calgary, Edmonton and Vancouver trended lower as shown by year-over-year house price comparisons. Despite these cities' tight labour markets and reasonable buyer demand, the fact that house price growth overshot the rate of income growth during the boom periods, will result in a short-term price correction.

With relatively modest average housing values and a recent history of moderate price appreciation, residents in Montreal and Ottawa experienced only slight price corrections. While no region of the country is immune to the effects of the global recessions, the relative strength of these regions' diversified economies are expected to buffer the housing markets there when compared to the corrections happening in other large Canadian cities.

Looking ahead, Soper concluded, "The first quarter of 2008 was the final period of substantial price appreciation during the long expansionary cycle that Canadian housing enjoyed this decade. The first quarter of this year will pale in year-over-year comparison, although conditions should improve over the dismal final months of 2008. The balance of 2009 should see gradual and continuous improvements as the effects of low mortgage rates along with efforts by governments and central banks to get the economy back on its feet again begin to take hold."