Economic downturn and dampened consumer confidence caused house prices to dip during fourth quarter
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,
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
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
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."