Canadian Real Estate Market To Experience Growth This Year

Experts are of the view that instead of declining further, the real estate market in Canada is expected to experience growth during the current year since buyers would be making the most of the sustained low interest rates that were introduced to counterbalance the current economic tumult. In fact, the experts' views came in the wake of the Canadian Real Estate Association (CREA) amending its national projection regarding home re-sales. The CREA has said that while the sales would be more than anticipated, the prices would go up during the second quarter of the current fiscal year.

According to a previous prediction by CREA, the real estate market in Canada was expected to decline one per cent further vis-à-vis sales during the current fiscal year from 2011. However, recently the association revised its nationwide forecast and said that the sales of would increase during the current year, although below one per cent over the sales during 2010.

Benjamin Tal, deputy chief economist of the Canadian Imperial Bank of Commerce (CIBC), remarked that the uncertainty in the stock market in the recent times owing the debt crisis in European and the downgrading of the United States credit rating has actually facilitated in enhancing property sales in the Canadian real estate market. He observed that overseas negative economic news seems to have a tendency to maintain low interest rates in Canada.

In the recent times, since the debt issues in the United States and Europe reached a crisis, economists have been envisaging that the Bank of Canada would not change its strategic interest rate of one per cent for a minimum till next year. In fact, the economists had a different view last winter, when they generally looked forward to the Bank of Canada to start pushing up the interest rates anytime during the current year since the economy became stronger - pressurizing the borrowing rates to move upward.

Now that the global economy is appearing more frail that it was anticipated to be as well as with the recent assurance of the United States Federal Reserve to maintain its strategic interim interest rate at a record low for two more months, now it is also expected that the Bank of Canada would also postpone hiking its short-term interest rates.

According to Tal, the economic uncertainty prevailing worldwide is actually doing well to the mortgage holders, since it is, in actual fact, deferring the interest rate hike in Canada. Elucidating further, he said that at times when the stock becomes unstable, real estate turns out to be an appealing investment owing to the security it provides. He added that there are several people who can utilize this chance to explore incredibly low interest rates and, therefore, it may be ascertained again that the despairs of people somewhere else is actually proving to be of great help for the home buyers in Canada.

Meanwhile, an economist with TD Economics, Sonya Gulati said that the central bank of Canada is expecting the sales to be a little more restrained during the ensuing two months. However, in the longer term, the buyers, particularly the first time buyers as well as immigrants are unlikely to be discouraged since the interest rates would continue to be low.

According to Gulati, it is possible that people would wait to observe whether they would like to buy homes or not and also if the things improve. During the last few years, people have actually witnessed a lot of extreme high and low situations and, hence, they expect a little more restrained activity during August and September, she said, adding that while making a decision, people would be influenced by the stock market, but eventually one of the two crucial things for them is definitely the interest rate. Since the mortgage rates continue to be incredibly low, people might really like to go into the market in spite of the ambiguity prevailing there.

In the meantime, Gregory Klump, the chief economist at CREA, opined that it is actually premature to assess if the buyers are shifting on the way to or drawing back from real estate owing to the unstable stock markets. He, however, pointed out that it has been seen throughout history that generally the real estate market performs well when there is an economic uncertainty - possibly because investing in real estate in such uncertain times provides much more security to people.

Klump further said that the Canadian real estate market has always been comparatively steady even in times of turmoil in the financial market and added that although a number of investors had deferred purchasing sophisticated and expensive residential property during the financial tumult that prevailed in 2008 and 2009, the same buyers came back to the real estate market once the market began to recover. Klump went on to add that when Canada was gripped by an unstable financial market the last time, even the real estate, especially the residential property, market was not left untouched. Nevertheless, it was definitely much less unstable compared to the financial market and the Canadians too understand that and feel at ease in making investments in their homes.

In general, recently, a statement released by the CREA anticipated that as many as 450,800 housing units would be sold throughout Canada under the association's Multiple Listing Service (MLS) during the current year and the mean selling price would be somewhat higher. Earlier, in May this year, the association had predicted that 441,100 housing units would be sold by way of the MLS.

It may be noted that currently as many as 90 per cent of Canadian home re-sales are catalogued on the MLS.

In fact, Gulati as well as Tal both said that they look forward to the market to calm down in 2012 when the interest rates would begin to rise again. According to Gulati, the prices of residential property would decline to the extent of around 10 per cent. On the other hand, Tal was of the view that the drop would be somewhere between five per cent and 10 per cent. While Gulati explained that this phenomenon would be a 'correction', Tal expressed that it would be an 'adjustment' - but nothing very significant to be considered exceptional.

The CREA has, as of now, said that it was amending the sales prospects for the year 2010 announced by it earlier plunging to 447,000 housing units, approximately comparable to the mean during the last 10 years.

Based on every region, the sales estimation for British Columbia for 2011 has been modified somewhat higher, since sale of residential property in this province seem to have reached the end of decline much earlier than expected. On the other hand, the home sales in Ontario is anticipated to be stronger than what was predicted and this is likely to somewhat counterbalance the anticipated softer demand in Manitoba, Quebec, Labrador as well as Newfoundland.

The CREA has said that presently it anticipates that the national mean home prices will increase by 7.2 per cent in 2011 to reach $363,500 compared to its May forecast of $352,500.

The increasing revision of home prices by the CREA is a sign of augmentation during the second quarter in Vancouver and also increase in the prices in other regions of Canada, especially Toronto. In fact, Vancouver has already witnessed a rush in the sale of multimillion-dollar residential property during 2011. According to the CREA, these two markets not only have a greater number of sales, but also the mean price and, hence, they have a major role in swaying the national average.

In effect, further latest listing also ought to bring about a more reasonable resale housing market in majority of the Canadian provinces, with the nationwide mean price expected to become stable in 2012.

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