Five things to watch in Canadian real estate in 2015

By Wayne Karl
January 01, 2015

By all accounts, 2014 was a good year in Canadian real estate – and in some areas a great year. Here are five things to watch in Canadian real estate in 2015.

‘Overheating’ in the housing marketTemperature gauge

Bank of Canada Governor Stephen Poloz spooked many Canadians in December when, in releasing the Bank’s semi-annual Financial System Review, he said that house prices could be overvalued by as much as 30 per cent – 30 per cent.Only weeks previous, the chief economist for Canada’s housing agency, Canada Mortgage and Housing Corp., reassured Canadians that overheating wasn’t a serious concern.

“The housing market does have a fairly bright outlook,” Bob Dugan told YPNextHome.

“We don’t see overheating as being a problem in any of the markets across Canada,” he says. “Some markets are stronger than others, particularly in western Canada.”We also sought insight and reaction from a leading mortgage broker, Calum Ross.“Respectfully, the Bank of Canada is no more qualified to talk about the specifics of the housing markets than the Canadian Real Estate Association is qualified to comment on monetary policy,” he told YPNextHome.

“Saying there is a Canadian housing market is not that dissimilar from saying there is a Canadian temperature – the term itself is irrelevant.”

Mortgage ratesCanadian money

In its most recent interest rate announcement, the Bank of Canada once again held its influential overnight target rate at one per cent – where it has sat since September 2010.Most economists don’t expect any notable rate increase in 2015, including BMO’s chief economist Douglas Porter. But if rates do begin to inch up, the impact will be interesting to watch.

“The chances of a two percentage point rise in rates in any year these days is remote, and I would peg it as extremely unlikely in 2015,” Porter told YPNextHome. “We do believe that at long last rates will begin to creep higher, but we are only looking for quarter-point hike by the Bank of Canada.”

Calgary, Toronto and Vancouver – which have seen significant price gains in the last few years – are among the markets most vulnerable, he says.BoC’s next rate announcement comes Jan. 21, 2015.

Oil and gasGas prices

We’re loving the cheap gas at the pumps these days – freeing up coin for us to spend on other consumer goods – but falling oil prices could cause a farther reaching economic shake-up.Is it a short-term blip or a more prolonged development that could lead to dramatic change? TD Economics, for one, forecasts downgrades in economic growth in the oil-rich economies of Alberta, Newfoundland and Labrador and Saskatchewan.

In its latest Provincial Economic Forecast in December, TD said real GDP growth in Alberta is expected to fall from its recent trend rate of more than four per cent to 2.3 per cent over the 2015-16 period. Accordingly, after topping the 2014 growth charts by a wide margin, Alberta is expected to trail Ontario (2.5 per cent) and BC (2.4 per cent), where activity is expected to gain a step relative to 2014.

A prolonged oil and gas slump could also affect the real estate markets in Alberta.

Mattamy Homes’ acquisition of Monarch Corporation

Mattamy Homes CEO Peter Gilgan

“Buy land, they’re not making it any more.” This famous Mark Twain quote rings true in the recent announcement by Mattamy Homes that it is acquiring Monarch Corporation.It’s huge news in the home building industry, but it’s also interesting from a general business and consumer news perspective.

Why?

First, it’s a success story: a Canadian company buying the Canadian division of U.S. builder, in this case Taylor Morrison Home Corp., which builds homes in Arizona, California, Colorado, Florida and Texas.

Second, the motivation for the deal: land. In Ontario, land availability is a growing issue for builders, as are rapidly rising acquisition costs. A run-up in land prices in the province in the last few years is one of the reasons Taylor Morrison wanted to sell Monarch.

By acquiring Monarch, Mattamy quickly gains Monarch’s existing land tracts in the GTA, Kitchener and Ottawa, most of which have been approved for development.

Mattamy, primarily a lowrise builder, also gains an immediate foothold in the fast-growing highrise market.

Toronto, specifically Mayor John ToryToronto City Hall

As if being mayor of Canada’s largest city isn’t difficult enough – some say it’s the toughest job in Canadian politics, certainly at the municipal level – Rob Ford drew a lot of negative, unwanted attention TO’s way.

On the one hand, Mayor John Tory can’t help but present the city and the mayor’s office in a brighter light. On the other, his predecessor left him with quite a mess.

Among Tory’s challenges: uniting a previously divided council, improving relations with Queen’s Park and Ottawa, and – the big one – transit. If Tory has his way, by the time his first term is up in four years, construction of his SmartTrack transit system will be well underway.

Toronto’s real estate market, meanwhile, is expected to continue humming along, though affordability is becoming a growing concern.

Related reading

Relax homebuyers, Canada's housing market is not overvalued by 30 per cent

Interest rate hike unlikely in 2015: BMO

Falling oil and gas prices: Canada's gain could be Alberta's pain

Mattamy Homes to buy Monarch Corporation

John Tory as mayor and SmartTrack transit, here we come

About Wayne Karl

Wayne Karl is an award-winning writer and editor with experience in real estate and business. Wayne explores the basics – such as economic fundamentals – you need to examine when buying property. wayne.karl@nexthome.ca

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