Canada's real estate market is slowing while most international markets are stumbling, according to Global Real Estate Trends, a report by Scotia Economics.
The renewed slowdown in global economic activity is putting further downward pressure on already-weak residential property markets across much of the developed world. In the majority of the major markets we track in North America, Europe and Australasia, inflation-adjusted home prices declined on a year-over-year basis in the second quarter of 2011.
While Canada's hot housing market also has begun to cool, it remains a notable outperformer.
Historically low borrowing costs combined with sharply lower home prices — in many markets — have restored considerable housing affordability. In more typical times, this would be a sufficient catalyst for a strong revival in housing demand. Indeed, residential investment traditionally has played a leading role in economic recoveries.
But these are not normal times. Consumer confidence has been dented by persistently high unemployment, intensifying European sovereign debt concerns, and signs that the global economic recovery is rapidly losing momentum. Renewed financial market volatility is adding to the general sense of unease. Many household are choosing to prioritize savings and debt repayment over major new purchases.
Global housing demand is expected to remain moribund until the global economic recovery gets back on a firmer footing and some financial market stability returns. An oversupply of owner-occupied housing, due to overbuilding and rising foreclosures, remains problematic in many markets, adding to the downward pressure on prices. A generally more cautious lending environment also will hold back the pace of recovery.
Of the nine major developed markets tracked in the study, only three registered positive year-over-year real price growth: Canada's housing market stands out in its resilience and longevity. Average inflation-adjusted existing home prices were up 5% year-over-year in the April-June period, on par with the first-quarter's pace of appreciation. Data for July and August point to continued firm but stable sales through the late summer, alongside a levelling out in prices.
According to the U.S. National Association of Realtors, Canadians, including recent immigrants to the United States and temporary visa holders, purchased US$19 billion in U.S. residential property in the 12 months to March 2011.
Buyers are taking advantage of a combination of deeply-discounted U.S. home prices and a weak U.S. dollar. The average price of a U.S. existing home has dropped by roughly 20% since late 2005, from about US$275,000 to $218,000.
However, given the appreciation in the Canadian dollar over this period, the average price in Canadian dollar terms has fallen more than 35%. U.S. home prices in Canadian dollars are at their most affordable in over a decade.
Canadians tend to favour traditional warm weather locations, particularly Florida and Arizona. For the majority of buyers, the primary use of their U.S. property is as a vacation home, though a sizeable share of purchases are primarily for investment/rental purposes.