Canadian Real Estate Surges 72% in December 2009

The overall Canadian real estate market surged 72% in the month of December 2009 based on existing home sales figures released by the (CREA) Canadian Real Estate Association on January 15, 2010.

This is not only a record, but also the highest level ever recorded for the month of December. Average national residential prices also rose 19% year-over-year in December 2009.

This caps a huge market rally of existing home sales in the fourth quarter of 2009 for Canada.

Although national sales activity started 2009 with relatively timid figures, the fourth quarter blowout signaled a very active Canadian real estate market.

This large increase in sales reflects the rising confidence that Canadians had in the fourth quarter of 2009 that Canada was exiting the worst recession since the Great Depression.

Canadian real estate purchasers continued to benefit from historically low interest rates. A decision by the Bank of Canada to hold its overnight lending rate at .50% during its December 8, 2009 meeting only bolstered consumer confidence. This only further supported a strong Canadian real estate market rebound.

The Canadian real estate market ended 2009 with not only positive growth in existing home sales but it continued the overall trend of increased average price appreciation after a brief dip in 2008.

Many people have looked at the Canadian real estate markets recovery and wondered why it has bounced back so strongly from its correction.

Recently this was addressed at a January 11, 2010 speech in Edmonton by David Wolf, Advisor on behalf of Timothy Lane, Deputy Governor of the Bank of Canada.

Despite that correction, many are asking why Canada’s housing market in general has tended to be less turbulent than housing markets in other countries. An important factor is Canada’s housing finance and regulatory system. Canada’s mortgage market is national, with similar lending conditions and mortgage products across most regions. It is dominated by domestic players, especially the six major banks, although a number of new competitors have entered the Canadian market in recent years.

Canada’s mortgage credit culture has tended to be quite conservative. Mortgage insurance is compulsory for federally regulated financial institutions when the loan-to-value ratio is over 80 per cent. Further, mortgage insurance providers tend to set the lending standards for the industry as a whole. Only about 30 per cent of mortgages in Canada are securitized, so most lenders have ongoing exposures to the mortgages they originate, and that gives them an incentive to be more prudent in their lending practices. Borrowers in Canada also have reasons for prudence: mortgage interest on primary residences is not tax deductible in Canada and (in most provinces) lenders have full recourse to borrowers in the event of default. Thus, a combination of factors contributes to a more stable mortgage market.

With Canada’s economic recovery, the housing sector has been experiencing a strong rebound. Sales of existing homes have reached a new high, and prices are now almost back to 2008 peak levels.

The Bank of Canada has reiterated its commitment to hold interest rates at current levels until the end of the second quarter of 2010. This can only bode well for further strength in the Canadian real estate market in 2010.