Viewpoint: Homeowners, stay put — better days are coming

By Michael Yang

The latest data on Canadian housing prices will surely leave Centretown homeowners, who have long drooled over the red-hot gains in other metropolitan real estate markets, disappointed.

According to the Teranet-National Bank House Price Index released this month, Toronto led all cities in yearly gains with a 20.9-per-cent surge in prices, followed by Hamilton at 17.6 per cent, Victoria at 17.1 per cent and Vancouver at 16.4 per cent. The Ottawa region limped into the fifth spot with a much more mundane four-per-cent increase.

To make matters worse, Centretown performed even worse than that with a lean 2.3-per-cent increase over the past 12 months, according to the Ottawa Real Estate Board. That’s just a slight improvement over the meagre 1.5 per cent in gains we’ve averaged annually over the past four years.

As one real estate expert put it to the Ottawa Citizen last summer, “if that was your RRSP investment, you’d be worried.”

But don’t be. Unless you’re planning to uproot and sell in the next few months, things are only looking up for all of you still dreaming of double-digit returns down the road on your nest eggs.

Ottawa will remain one of Canada’s most stable housing markets and a steady winner for decades to come. That’s because the fundamentals driving the national capital’s economy are rock-solid at a time when many experts see a serious correction coming in the wake of last year’s housing boom.

According to Statistics Canada, Ottawa’s unemployment rate is now down to 5.7 per cent, its lowest level since 2011 and one of the lowest in all of Canada. The city’s population, wages and inflation are all rising in lockstep with housing prices — a sign that increases to date have been sustainable, if not marginally weaker than they really should be. The market is also one of few in the country that is balanced for both buyers and sellers, according to a metric developed by the Canadian Real Estate Association.

In a seller’s market, prices are artificially propped up by lack of supply; the opposite occurs in a buyer’s market. Both are vulnerable to problems in the long-term.

Combined with a multitude of other factors, such as low crime rates, a high immigrant population and general affordability, demand should be as stable as it has been for the past 20 years. Ottawa’s housing market has not posted an annual loss since 1997 and has actually averaged an impressive eight per cent per year from 2000 to 2012. Those gains could be replicated in the near future as Centretown’s glut of condos are slowly snapped up and supply tightens.

The same can’t be said for Canada’s hottest real estate market.

“Let’s drop the pretense. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,” Bank of Montreal chief economist Douglas Porter wrote in a note last week. “Most can agree (a bubble) is when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising,” he said. “Prices in Greater Toronto are now the fastest since the late 1980s — a period everyone can agree was a true bubble — and a cool 21 percentage points faster than inflation and wage growth.”

Average house prices fell from $475,000 in 1989 to $280,000 by 1996 after that bubble popped. With huge debt loads, stricter mortgage rules on the horizon and a heavy government hand that’s already slapped Vancouver with cooling measures, it’s only a matter of time before Toronto’s  market comes crashing down.

Call me crazy, but I’d take a sensibly priced detached home near Ottawa’s downtown core over that any day.