Our Real Estate Future is Solid

President's Pen

By Heather Skuce, Ottawa Real Estate Board President,

the now EMC, Homes & Real Estate This Week, February 14, 2008

The news out of the United States about their economy – particularly their housing market – just keeps getting gloomier and more pessimistic.  As their nearest neighbours and major trade partners, it’s natural for Canadians to worry that what happens south of the border will have a major effect on major areas of our economy.  No one could blame us for feeling that way, but as it turns out, we’re probably more worried than we need to be.

The good news, from a Canadian perspective, is that according to some very smart and cautious people, what’s happening in the U.S. is not about to happen here in Canada.  There are three good reasons for this: employment, affordable interest rates, and consumer confidence.

According to the Canadian Real Estate Association (CREA)’s chief economist, 2008 will see slower job growth in Canada, but we won’t see massive layoffs.  The unemployment rate will remain historically low, which supports housing demand, according to the Canadian Mortgage and Housing Corporation (CMHC).

People who are employed are far more likely to purchase a home, and when more people are employed, more houses are purchased.  In fact, CMHC is forecasting 6 per cent job growth in Ottawa this year, which will exceed the record set in 2006 for this area.

Lower interest rates will also make buying a home more affordable for Canadians, and will help to offset the erosion in housing affordability that occurs when home prices increase, as they are likely to continue to do, if more slowly in 2008 than in the recent past.  In January, the Bank of Canada cut its key interest rate by a quarter of a percentage point (and it is expected to do so again in March).  Canadian banks quickly followed, continuing to offer competitive rates to qualified buyers.

All of these factors will boost consumer confidence and drive resale housing sales, which are projected to remain at near-record levels in 2008, according to CREA.  The resale market will pull back slightly from the breakneck pace that was set in 2007, but this is still forecast to be the second-busiest year on record in almost all provinces.

Remember, too, that the mortgage market in Canada was and is very different from that of the U.S. Sub-prime mortgages (given to home buyers with less than perfect credit or home buyers who lack the paperwork to prove an income that can support the mortgage payments) are rare in Canada.

As of June 2007, more than 21% of U.S. mortgages were sub-prime compared with only 5% in Canada.  Our more fiscally conservative mortgage market is far less vulnerable to a crisis like the one sadly being experienced by our neighbours to the south right now.

So take a deep breath, and remember that we may live next door to the U.S., but our housing market remains strong, healthy and proudly Canadian – and 2008 is shaping up to be another great year to buy or sell a home.