Canadian Real Estate: No Signs of U.S. Style Meltdown

The Canadian housing market maybe slowing, but it isn’t facing a meltdown such as the one in the U.S., according to PricewaterhouseCoopers (PwC). Over the past several years, banks …

The Canadian housing market maybe slowing, but it isn’t facing a meltdown such as the one in the U.S., according to PricewaterhouseCoopers (PwC). Over the past several years, banks and regulators have kept a close eye on mortgage lending practices, which has resulted in Canada not being affected at the same level as the U.S. by the sub-prime mortgage crisis.

“U.S. housing woes haven’t extended to Canada,” said PwC partner Frank Magliocco in a recent press release. “Property markets, including housing, track at or near equilibrium with high occupancies and controlled development. We always get caught up in U.S. trends, but given our strong fundamentals they shouldn’t affect us to the same magnitude.”

General Canadian property trends

Mortgage rates are beginning to rise, according to the fourth quarter report recently released by Canada Mortgage and Housing Corporation. However, they are still low in the historical context and are expected to remain as such.

Canadians are presently employed in record numbers, with 194,000 hirings in the first quarter of this year alone. The growing demand for qualified employees is expected to drive up individual salaries which will in turn increase demand for housing.

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Net migration, defined as the number of people who immigrate into Canada minus those who leave the country, is also expected to increase by 9.2 percent. This adds some 261,000 people to the rolls in 2008 and is expected to put upward pressure on housing demand. In addition, net migration numbers are expected to remain approximately the same in 2009. However, an aging population and declining birthrate will continue to temper demand in the residential sector in the medium and longer term.


The Canadian housing market

Compared to last year’s record breaking peak, real estate transactions in major markets across Canada are low, according to Housing Market Outlook 2009, a recent ReMax report. Approximately 440,000 residential properties were bought and sold in 2008, down 15 percent from the year before.

Of course, how well the housing market does in 2009 depends on how well the economy performs. Like most other markets, the Canadian housing sector is affected by the credit crunch, the unstable stock market and the global economic recession. However, if confidence is restored to investors and they are encouraged by low interest rates, the residential market could recover by the spring of 2009.

Top markets

Top markets that are expected to perform well in 2009 are all in western Canada, analysts agree. Edmonton and Calgary make the list with the highly rated Vancouver rising to the top, according to PricewaterhouseCoopers. Many people are moving to Calgary to be part of the booming, resource driven, economy in Alberta. In Calgary, all sectors—hotels, industrial, office, residential and retail—are expected to do well. Edmonton is also riding high from the same energy driven economic boom the province is experiencing.

Eastern Canada and maritime markets are currently weak, according to PwC. Investors need to be careful when looking at properties in maritime markets unless they have specific, deep knowledge of the area.

Companies involved in the real estate sector are very optimistic about the country’s overall property market outlook according to PricewaterhouseCoopers. “Those companies that have cash and established balance sheets are and will continue to do relatively well. Financing will cost more and take longer than expected but they will come out ahead in the end. In fact, Canada ranks third in the world (preceded by Asia Pacific and the Middle East) for a moderate to high increase in the availability of capital for real estate,” said Christ Potter, a PwC partner who specializes in Canadian real estate tax.


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