Unscathed

Canadians are often ridiculed for their conservative nature. But the last year has made that stereotype the envy of most other G-20 nations. Our conservative banking practices and government fiscal restraint in the last decade have put us in comparatively good stead to weather the financial tsunami that hammered the rest of the world.

By comparison our real estate sector has done well too. Referring to the bar chart attached you can see that unit sales took a beating from August 2008 until May of this year. That downturn, straddling the two calendar years, was understandable as buyers stayed away in an emotional reaction to the very unsettled global economic conditions. Average prices reflected that hiatus in activity as prices corrected about 3%.

The strong rebound commencing in May recovered some of that loss, so that year over year prices are off a little less than 1%. Improved affordability due to the Bank of Canada’s unprecedented lowering of interest rates has been the main driver of this recovery. A secondary factor in the robust activity of the last 4 months has been the pent up demand of all the buyers that shelved plans to move during the turmoil of late last year. Worthy of note in this sales improvement, is that unit sales priced between $400,000 and $500,000 are down 17% over 2008 and above $500,000 are down 30%. This is in keeping with the public’s uncertainty about the economy – they are buying a roof over their head as opposed to incurring higher debt for their dreamed of “Shangri La.”

As this goes to print in September, the Bank of Canada has announced that it is buying more mortgages from the chartered banks to further increase liquidity in the system. Translated, this means the banks can offload more of their questionable mortgages to the Government (you and me, actually!), so that they have the money to re-lend to more qualified buyers, spurring on the whole cycle. This should further feed the economic recovery.

Assuming our esteemed political leaders can continue to stick handle through the recovery mine field as well as they have done over the last year, the Guelph real estate market should continue to reflect relative stability, unlike statistics coming out of B.C and Alberta reflecting larger price corrections. The huge deficits they are incurring to pay for the stimulus may put our heirs in the poor house, but that is a discussion for another time!