Bubbles in Our Real Estate Market

The recent release of reports that present a not so rosy prospect for the Canadian economy has drawn a lot of reactions from various stakeholders and experts. The study on the housing market that was presented by a left-of-center think tank has raised the possibility of a bubble burst in the country’s housing sector. It went as far as saying that leading and coincident indicators are pointing to a disaster waiting to happen. This progressive analysts are looking closely at possible major corrections that are bound to happen in major real estate markets in Canada.

However, another report that was also recently released has presented a completely different scenario for the country. This second report takes on a relatively more sober position and assures us that the dreaded housing bubble is unlikely to happen.

The first report attributes the expected housing bubble to high inflation rates and declining interest rates. According to the study, the country has moved towards bubble territory as a result of the spike in prices of housing units which breached the $80,000 marks for the period 2001 to 2006. This price level has been the benchmark in major real estate markets in the last 20 years. Among all major markets, Edmonton is in the worst situation because the movement is attributed to the developments in the condo market.

Averting the Housing Bubble

Most analysts and policymakers are pushing for timely interventions to get a firm rein on inflation specifically in the next 24 months. On the other hand, the second report is recommending immediate policy changes that will put a tighter control on consumer credit in order to avert the possibility of a market bubble and mortgage defaults in major markets in the immediate future.

The two reports are not poles apart in all aspects. Both reports are recommending a calibrated upward adjustment in lending rates and adoption of a tight rein on home mortgages by banks and other lending institutions to mitigate the impact of the anticipated correction in major real estate markets.

Edmonton Real Estate in Focus

Market conditions remained relatively the same over the last few months - declining sales and high levels of housing inventories. Single detached home units are well ahead on condo units as the sales of the former remained within the same level it was in previous months.

The average price of single detached home units moved slightly upwards to $390,893 which is equivalent to 0.6 percent change from the previous month. On the other hand, average price of condo units dropped to $229,358 which is equivalent to a 3% percent decline in average price from the previous month.

Notwithstanding the prevailing decline in listing of homes for sale, inventory levels remain high in Edmonton’s real estate markets. In fact, it is moving closer to the levels achieved in 2007 and 2008. However, industry analysts expect the inventory levels to decline within the next few months as we are looking at a significant number of home sellers withdrawing from the market and moving to the home rental segment.

Overall Prospects in Major Markets

Demand for housing starts is expected to soften in the short term as a result of the expected cooling of the economy, decline in consumer confidence and implementation of harmonized tax policies for British Columbia and Ontario. However, consumers have no reason to worry, as these developments will not bring us closer to a real estate bubble. The sale of new home units is expected to stabilize and the resale of housing units will start to decline in the medium term.

Most industry analysts and experts agree that the ongoing decline in sales across all segments is an indication that real estate markets are moving towards a more stabilized condition.

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