Prospects for the 2010 Housing Market

The rebound that occurred in the Canadian housing market in 2009 was nothing short of incredible. Having started the year a dismal 47% off 2008 levels, sales steadily clawed back. Purchasers who held off in the final quarter of 2008 and the first quarter of 2009 quickly acclimatized to new market realities and moved to take advantage of favourable lending rates. Yet, inventory levels proved a significant impediment, as supply struggled to meet demand—down considerably for much of the year.

Consumer confidence started to return in the second quarter and the real estate market was the first place in the country to show signs of the recovery.

Housing proved to be a safe harbour for much of the year. Rock bottom rates fueled much of the activity, but the value that Canadians placed on owning a home was equally important.

How long are the low interest rates expected to remain?
Since we talk of returning to normal, we can’t expect the low interest rates to remain forever. Yet, forecasts for growth suggest the Bank of Canada has no plans to raise interest rates in the foreseeable future.

In its recent announcement, the Bank of Canada stated that “conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010.” The Bank also forecasts that the Canadian economy will grow by 2.9% in 2010 and 3.5% in 2011, after contracting by 2.5% in 2009.

It is likely in 2010 we will see an end to quantitative easing and efforts to reduce fiscal deficit. Both of these will keep pressure on the Bank to maintain low interest rates.

Certainly the low interest rates have done wonders for avoiding repossessions and in stimulating the market. However, when the economy returns to normal growth and interest rates rise to around 6.5%, many who have been hanging on may suddenly start to struggle.


Overall Outlook
The momentum for the market across the country should position real estate for greater acceleration in 2010; the average price of a Canadian home will top $325,000. The number of national home sales will edge close to half a million in 2010.

Recovery will continue from coast to coast. Sales will increase in 83% of the markets by year-end, and 91% of the markets will see prices rise.

The implementation of the Harmonized Sales Tax (HST) in Ontario is expected to cause a run up in housing activity during the spring market, as purchasers move to avoid additional expenses. In the longer term, new construction is expected to be impacted much more extensively, shifting some buyer demand to the resale sector—at least until buyers adjust to the new normal.

Given the momentum that currently exists and the fact that all segments are now working in tandem, further increases in sales and average prices are forecasted for 2010.

The outlook moving forward is bright; balanced market condition should prevail in 2010. Inventory as always will be the wild card.

The worst is behind us, however there may be some bumps along the road. Real estate will continue to be a solid investment both financially and emotionally. As the market move onward and upward, the last recession will register as little more than a blip in most places.