Global Real Estate Recovery Continues, According to Scotia Economics

TORONTO, Jan. 11 /CNW/ - The global housing recovery continues to gather momentum, according to the Global Real Estate Trends report released today by Scotia Economics.

Nourished by exceptionally low borrowing costs, direct government purchase incentives and improving confidence in the fledging economic recovery, residential real estate in many major developed nations firmed up further in the third quarter of 2009.

"Canada still leads the pack among the markets we track," said Adrienne Warren, Senior Economist, Scotia Economics. "Inflation-adjusted average home prices in the July to September period were up 11 per cent from the same quarter a year ago, a dramatic turnaround from the 10 per cent yearly decline recorded in the opening months of 2009. According to the report, available monthly data point to a further strengthening in the final quarter of the year."

Average home prices in Australia have also moved back into positive growth territory, at five per cent year-over-year (y/y) in Q3, though recent interest rate increases may begin to temper the pace of appreciation.

Average home prices in many other markets are still falling on a y/y basis, but the rate of decline has for the most part slowed notably. In the United States, average existing home prices (adjusted for inflation) were down only six per cent y/y in Q3, compared with a 14 per cent decline in Q1. U.K. housing prices are following a similar track, while prices appear to be stabilizing in France.

"A shortage of homes for sale, alongside strengthening housing demand, is contributing to the firming in prices in a number of countries, including Canada, Australia and the U.K.," commented Ms. Warren. "New construction essentially ground to a halt at the onset of the global financial crisis in the fall of 2008, and has yet to fully recover."

Meanwhile, while 'first-time buyers' are out in full force, many potential 'move-up sellers' remain on the sidelines, contributing to a shortage of listings.

"The pickup in housing activity, even if only modest, is providing much-needed fuel for the global economic recovery," said Ms. Warren. "Housing is a highly cyclical, interest rate sensitive sector, which typically leads the broader economy.

"Firming home prices, combined with rebounding stock markets globally, is gradually rebuilding lost household wealth and confidence," continued Ms. Warren.

Another Year For The Record Books

Shaking off a brief early year slump, Canada's housing market wrapped up another strong year in 2009.

Scotia Economics estimates MLS home sales totalled about 465,000 last year, an increase of seven per cent over 2008. Average home prices in turn rose roughly four per cent to a record of about $315,000. Homebuilders were somewhat more cautious, breaking ground on an estimated 146,000 new dwellings, compared with 211,000 units in 2008, and a long-run average of 175,000. According to Ms. Warren, these results exceed all expectations.

In the report, Scotia Economics argues against taking an overly alarmist view to the renewed appreciation in Canadian home prices. Prices are being bid up by fundamental demand-supply factors, with little evidence of speculative buying activity. Typically, when the ratio of home sales to new listings moves above 50, considered a sellers' market, selling prices rise faster than inflation. The larger the imbalance between the number of potential buyers and willing sellers, the larger the average price gain.

"We expect housing demand will remain strong through the key spring sales season as buyers attempt to pre-empt the inevitable rise in interest rates, and improving labour markets bolster confidence," said Ms. Warren. "Reduced affordability, through a combination of higher home prices and borrowing costs, will eventually cool demand, though probably not until much later in 2010."

The further home prices climb, the greater the risk of an eventual price correction. Past housing booms, both in Canada and internationally, have almost always been followed by some degree of real price stagnation or decline. Indeed, this is an essential ingredient to restoring affordability and generating renewed pent-up housing demand.

"A subpar pace of economic growth in 2011 and beyond as fiscal stimulus is reined in will also likely contribute to a weaker housing outlook," concluded Ms. Warren. "The typical downcycle, however, is slow and protracted, with the post-boom era of real price declines averaging about five years."

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.

SOURCE Scotiabank - Economic Reports

For further information: For further information: Adrienne Warren, Scotia Economics, (416) 866-4315,; Robyn Harper, Public Affairs, (416) 933-1093,

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