July 14, 2005
Blurb: Boosted by strong economic fundamentals Canada's real estate sector keeps chugging along
Canada's housing market on fire
By Peter Diekmeyer o Bankrate.com
While economists around the world are scratching their heads trying to figure out whether their respective countries are in a real estate bubble, Canadians have been answering that question with a resounding no. Fired up by a buoyant economy and falling mortgage rates, Canadians are building and buying houses like there was no tomorrow.
Led by strong demand for condominiums, housing starts rose 7.2 percent to 237,200 units in June, on a seasonally adjusted basis. Year-to-date starts for the first half of 2005 were down 5.2 percent, from the same period last year. But even those numbers are deceptive, because 2004 was a record year, and forecasters had been predicting a drop.
Existing home sales via the Canadian Real Estate Association's MLS service also did well, crossing the $10 billion mark in May, for the first time ever. The number of units sold remained stable at 40,268, almost unchanged from the previous month. However the average price of homes sold rose a whopping 9.3 percent year-over-year in May to $251,567.
There are visible signals of Canadians' increasing fixation on their homes all across the country. Bragging about property value increases has become common. And television programming with real estate themes is booming. The Home and Garden channel now recalls CNBC's popularity in the 1990s.
A survey released this week by the Building Retailers Association of Quebec, shows that fully 76 percent of the province's households stated that they are regularly involved in renovation and do-it-yourself projects, an increase of 6 percent from the January total. The numbers reflect trends seen in other provinces.
Low interest rates continue to fuel demand
The average five-year closed posted mortgage rate among institutions
in Bankrate.ca's survey data (http://www.bankrate.com/can/graphs),
Ironically the mortgage rate drops have come despite the fact that Bank of Canada has kept its key rate unchanged at 2 1/2 percent since October of last year. This morning the central bank announced that the rate will remain unchanged, the seventh straight rate announcement in which it declined to act.
According to Paul Mims, vice-president (mortgages) at the Canadian Imperial Bank of Commerce, the reason for this is that mortgage rates are tied more toward the bond markets, which have been dong well in recent months due to falling inflation expectations in the overall economy.
A surprisingly strong economy
Canada has been benefiting from several trends in the world's economy. Our raw materials, especially oil, are increasingly in demand, and prices have been rising, putting more money into exporter's pockets. As a result, the Canadian dollar has been rising against a basket of the world's currencies and is holding its own against the greenback, which has also been rising. The upshot, is that Canadians' collective wealth and buying power has increased, making imports and foreign travel cheaper.
The job market, a key barometer of how Canadians assess their future prospects has also been showing positive signs. The Canadian unemployment rate has been on a three year downward trend, falling to 6.7 percent last month, tying an all-time low.
How long will the party continue?
The Bank of Canada will issue its Monetary Report Update, in which it spells out its economic forecast later this week, and will release its next rate announcement decision on September 7th, 2005.
Recent Bank of Canada action:
July 12, 2005 No change 2 1./2%
Peter Diekmeyer (www.peterdiekmeyer.com) is the Montreal Gazette's management columnist.
|© 2005 Peter Diekmeyer Communications Inc.|