Montreal’s housing market isn’t going south, and here’s why

Daniel Smyth

December, 2010

In the last issue, I defined what a housing bubble was because many of my customers expressed concern that the direction of the Canadian real-estate market was heading “south,” as in the U.S.

I will provide further evidence that there is not a housing bubble in Canada and certainly not in Montreal. If anything, sale transactions and prices are going to stabilize in the next little while.

“Supply and demand are rebalancing, and that’s keeping prices steady in many markets,” saidCanadian Real Estate Association president Georges Pahud. Canadian economic growth is moving slower than expected, but it is positive.

He added: “Canadians are focused on paying down their debts in anticipation of interest-rate increases in 2011. That means the continuation of low and stable interest rates is unlikely to cause a housing demand or prices to take off, especially since the hangover from accelerated home purchases this year is expected to persist with some momentum.”

Since the change in Canadian mortgage regulations in April, the average five-year fixed interest rate was 3.75 per cent, which increased to 4.75 per cent in May, and then dropped to 3.79 per cent by November. Interest rates have stabilized and the Bank of Canada stated that it has no intention of increasing the lending rate to banks any time soon. Interest rates will effect sales numbers, not toward bursting a bubble, but toward stabilizing prices in a recovering economy.

Fortunately, mortgage lending is conservative in Canada. People who can’t repay their loans simply won’t be approved for a mortgage and thus not get in over their heads like we saw in the U.S.

These regulations have helped to slow the market. Since April, the number of year-over-year sale transactions in Montreal has been less each month, but the overall number of transactions year-to-date is still greater (3.5 per cent) in 2010 compared with 2009. This is because of a “bulge” of buyers who purchased prior to the change.

But the Montreal market has always differed from the rest of Canada. Pahud said “local and national housing market conditions often differ, so home buyers and sellers should consult their real-estate agent to understand how sales, inventory and pricing trends are shaping up in their market.”

For example, the Canadian average home price in 2010 is approximately four per cent above last year. However, the average sale price for any real-estate transaction posted in the MLS for Montreal 2010 (January to October) revealed a 9.4-per-cent increase over last year. These numbers have been positive for a few years, something not expected in a bubble. Finally, let’s not forget what happens when the media gets a hold of a story, folks. Sensationalizing speculation just to sell papers and not printing the facts creates uncertainty and doubt. I think this, more than anything, is what we as homeowners have to fear. It is like scaring a herd of elephants and watching them stampede.

What does this all mean? The average sale price in Canada and Montreal is holding its own and will probably continue to creep up. However, it is expected that the market will stabilize and interest rates are expected to return to normal levels by the end of 2011, helping stabilize the average sale price across Canada.

For more information, please contact me. It will be my pleasure to help you to achieve your real estate goals.

Daniel Smyth is a broker with Groupe Sutton-Clodem Inc. He can be reached at 514-941-3858.