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Scotiabank Forum Discusses the Year Ahead for the Canadian Real Estate Market

TORONTO, Ontario, March 01, 2011 — In a presentation earlier today moderated by Scotiabank's Managing Director of Real Estate Secured Lending, David Stafford, Scotiabank's Chief Economist Warren Jestin and Senior Economist and real estate specialist Adrienne Warren were joined by Phil Soper President & CEO of Brookfield Real Estate Services to share their views on what 2011 has in store for the Canadian economy and the Canadian real estate market.

During the forum, held in Toronto, keynote speaker Mr. Soper discussed the potential impact of such variables as immigration and the availability of mortgage insurance on house values. Mr. Soper also explored some of the questions about the future of housing currently being debated across the country and across North America, including his thoughts on the age-old rent versus buy debate.

"As the United States struggles through the longest and deepest housing market downturn in decades, policy makers and social strategists are beginning to debate the value to society of home ownership itself," said Mr. Soper. "Few advanced countries weathered the global economic crisis as well as Canada. As real estate markets in many countries collapsed, Canadian homeowners emerged relatively unscathed. This does not mean our housing industry has escaped scrutiny. Regulators and public policy commentators are rightfully asking what if anything needs to be done to ensure the continued vitality of this critical sector."

Ms. Warren provided an outlook for the Canadian residential real estate market in 2011, and discussed the key economic, industry and demographic trends that will shape the year ahead. Ms. Warren observed, "Overall, we expect sales volumes will edge down only modestly in 2011, but with the momentum favouring the first half of the year in anticipation of higher borrowing costs. This would place sales about 15 per cent below the 2007 peak, and in line with the 10-year average — continuing the cyclical transition to a more sustainable pace of housing demand.

"Market conditions are expected to remain fairly balanced, favouring sellers to some degree in the spring, and buyers by the fall. This in turn suggests relatively steady prices, but with more downside risk later in the year," continued Ms. Warren.

According to Ms. Warren, three factors will likely reinforce a somewhat softer housing trend later this year and into 2012:

  • First is a lack of pent-up demand following the record-breaking housing boom of the past decade. Ownership rates are now reaching both a cyclical and structural peak, given inevitably higher borrowing costs, more moderate medium-term growth prospects and more restrictive mortgage product offerings. An aging population also will serve to moderate Canada's aggregate homeownership rate.
  • Second is the further tightening in mortgage lending rules announced in mid-January. Coming on the heels of earlier regulatory changes in 2008 and 2010, this will have at least some dampening impact on credit demand, home sales and prices.
  • Third is reduced affordability. While average mortgage carrying costs as a share of household income are at historically low levels, average home prices relative to incomes are at historic highs. As borrowing costs move up, affordability will be increasingly strained.

Mr. Jestin opened the Forum with a brief overview of the economic and financial market trends likely to influence the Canadian outlook. He noted that "the severe financial strains confronting some debt-heavy European economies and the U.S. probably won't trigger the dreaded double-dip. U.S. and Canadian growth is expected to be around three per cent in 2011. While subdued by pre-recession standards, this will compare quite favourably with prospects for the U.K., the euro zone and Japan."

During his presentation, Mr. Jestin also noted that:

  • The global economy continues to gain traction, led by strong performances in the large developing nations of China, India, and Brazil. These and other emerging powerhouses have become crucial sources of global locomotion, with their impact on foreign exchange and on commodity and capital markets escalating alongside their financial resources.
  • While the U.S. dollar and euro may periodically display sudden bouts of currency strength and weakness, both currencies are likely to lose ground over time against commodity-based currencies — such as the Canadian and Australian dollars — and emerging market currencies such as the Chinese renminbi. The loonie will probably average above parity with the U.S. dollar in 2011 and gain further altitude in 2012.
  • In this environment of global economic revival, commodity prices will remain elevated and the growth forecast is strong for Canada's resource provinces.

News source: Scotiabank


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