What has and will continue to drive housing sales this year? While there was some psychological impact because of the Feds' mortgage rule changes this year, the material impact was minimal. Strong affordability, low carrying costs and rising household incomes are the key factors that have continued to push demand in Canada. The number of homes trading hands did peak in 2010, so we'll likely see fewer homes trading hands this year. It won't be dramatic, but there could be 2% to 3% fewer sales this year. Most of that softening will happen in the latter half of 2011. What's your forecast for the average national price?
We're calling for a 3% increase for the national average. I believe what will happen is that we'll see price increases in the 4% range in the first half of the year, then in the second half it will be between 1% and 2%. So overall appreciation for the year should be 3% nationally, but there will obviously be regional variances. What about supply?
Supply is quite reasonable in Canada right now. As home prices rise, some people get priced out of certain markets. So they typically take their homes off the market and save more money before making a purchase, which reduces the amount of supply. This trend balances out the amount of supply relative to demand. What market is set to have sustained price appreciation?
The market that has the best chance of sustaining long-term price appreciation is Winnipeg. It's got a very balanced economy with strong manufacturing, agriculture and government and professional services. All of these sectors are improving as the national economy continues to recover from the 2008/09 recession.
The market is also really affordable. If you look at a two-storey home in Winnipeg, it costs about one-third of the price of a home in Vancouver. So you can get three Winnipeg homes for the price of a Vancouver home, and I can tell you that a teacher or an engineer in Vancouver is not being paid three times as much as a teacher or an engineer in Winnipeg.
What housing market could see some softening in appreciation?
Lower mainland British Columbia will be the most sensitive to interest rate changes. The nadir of the housing recession in 2008/09 was the fourth quarter of 2008 and during that time transactional volumes in Vancouver were down about two-thirds. So it's a region that has historically reacted more strongly than others when there are changes in affordability driven by interest rate changes. But it's also a region that's susceptible to changes in consumer confidence.
What city would be the best place to invest over the next five years?
If you're a long-term, buy-and-hold investor, I would say the best investment is Calgary. The housing correction in Calgary began in 2006. Calgary tends to have very violent swings in housing shortages or surpluses depending on whether energy companies are hiring or not. During the middle of the last decade prices rose in some years as much as 40%. Though the market is still working itself out, the energy industry has begun to hire this year and should continue to do so next year as global demand for energy increases. This will cause a shortage in the housing stock and lead to upward pressure on prices again.
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