Canada’s real estate market is bucking the global trend, with analysts predicting prices will actually increase over 2009, despite a poor first quarter. 

The Canadian Real Estate Association (CREA) announced an optimistic forecast for a 1.5 per cent rise in average home prices over 2008 – edging up to $309.500.   

This revised forecast is a major improvement to May’s gloomy outlook, when a 5.2 per cent drop in home prices was expected. 

Home resales were also drastically revised – instead of the 14.7 per cent drop over 2008 predicted in May, the CREA now believes sales will decline a mere 0.4 per cent for 2009.   

Industry professionals attribute the turnaround to the historically low mortgage rates, which are encouraging many new buyers to venture into the market, along with clear signs of the recession slowing in Canada.  A report from the Conference Board of Canada showed consumer confidence rose again in August, with steady gains since March. 

Consumers are generally upbeat about their near-future financial prospects and less fearful of job losses, while a majority believed it is a good time to make a major purchase, such as a car or home.   

“In general we see this as good news," said Todd Crawford of the Conference Board. "In terms of going forward, as people become more optimistic and they go out and spend more money, that is good news for the economy."  

The upbeat Canadian outlook is in stark contrast to the situation south of the border, where U.S. home sales and prices have collapsed. 

Though Canadian housing prices and sales took a tumble in late 2008, and 2009 began with a bleak outlook, this year’s second quarter and early third quarter show the influence of returning consumer confidence, as well as the positive effects of interest rate slashes since the start of the global economic crisis.

The government also put real estate incentives in its new budget earlier this year, including raising the ceiling on the amount homebuyers could draw against their RRSPs toward a down payment.  The Home Buyers Plan (HPB) was introduced in 1992, and allows homebuyers to draw against their retirement savings to put a down payment on a home, and pay back the withdrawal over a period of 15 year. 

However, the cap of $20,000 had not changed since then, and CREA representatives hailed the new limit of $25,000 as being more in line with inflation and increased home values.   

“That is important because the size of the down payment a home buyer can make is one of the most important factors in determining affordability,” said the Association’s CEO Pierre Beauchamp. “A plan that helps home buyers increase the down payment can mean lower financing costs, and that is a major factor to home affordability.” 

All in all, the incentives and lower interest rates appeared to have had the desired effect, encouraging homebuyers to strike while the iron is hot. 

“Homebuyers recognize that interest rates and prices have bottomed out, and are taking advantage of excellent affordability before prices and interest rates move higher,” said CREA President Dale Ripplinger. 

However, gains in 2009 might offset some predicted gains in 2010, as some homebuyers have pushed up their purchase dates to take advantage of today’s low prices.   

“The speed with which the Canadian resale housing market has rebounded is unprecedented,” said Chief Economist Gregory Klump.

“The economic recovery is expected to be slow and protracted, so the dramatic swings in activity seen in late 2008 and this year are unlikely to be repeated in 2010.” 

The Bank of Canada’s prime rate now stands at an unprecedented 0.25 per cent, which, barring inflation, is expected to remain in place through to the third quarter of 2010, and possibly through to 2011. 

An estimated 50,270 homes changed hands in July, a new sales record for July (up 18.2 per cent over the same month last year), with the west coast leading the charge, according to the CREA.  This is the sixth straight month of increased activity, and Mr Ripplinger said the change from the beginning of the year was like “night and day”. 

Despite increased activity out west, however, home prices are still expected to dip 4.4 per cent next in Alberta – which had seen tremendous gains from the thriving oil industry – and to remain flat in B.C, though these are better than the declines predicted earlier in the year.   

On average, national home prices are forecast to rise 2.1 per cent next year to $315,900, with sales gaining 5.3 per cent to 455,400 units. 

Despite the optimism in existing home sales, new home sales, which typically lag behind more sensitive indicators, remain flat.  Nationally, new home prices fell 0.2 per cent in June, the ninth straight month of decline.  Builders have been offering major price reductions to promote sales, said Robyn Adamache of the Canadian Mortgage and Housing Corporation (CMHC), slashing prices up to 20 per cent. 

Commercial real estate also continues to suffer, with retail vacancies growing nationwide.  The sector is not seeing any of the optimism of the residential real estate market, as businesses remain cautious in expanding their facilities, and new business start-ups remain modest at best. 

Economists say it is Canada’s prudent fiscal policies that have allowed it to ride out the worst of the economic crisis, without suffering the degree of losses seen in the U.S. and other countries worldwide. 

 “The Canadian financial system was once dismissed as 'boring' back when credit was flourishing," said Finance Minister Jim Flaherty of the highly regulated and low-risk nature of Canadian economic planning.

"The global financial crisis has shown us that boring has its benefits," he said.