Ottawa condo prices dropped between 2011 and 2016 then the last two years saw high price acceleration without a winter price dip.
Most recently while the “benchmark price” reported by the Ottawa Real Estate Board has hit new peaks, the average condo prices have seen significant drops. We interpret this to be an early warning that condo markets will return to a more “normal” state, likely leveling off later in 2019.
Ottawa house prices have maintained an upward trajectory that is far above the 10 year trend. It’s not clear exactly why prices are escalating so dramatically with most local incomes tied to government and crown corporation employment. Some speculate that the foreign capital that once favoured Vancouver and Toronto has moved to Ottawa.
According to the Federal Housing Agency, CMHC, Ottawa is currently one of the lowest risk markets in Canada, but if foreign capital continues to pour into Canada’s capital that risk assessment could change.
Current buyers should be concerned what happens when foreign buyers lose interest in Ottawa. Vancouver has seen prices in some areas drop 10% ($165,000) in less than a year now that foreign investment interest has fizzled.
In a nutshell, it’s buyer sentiment. Most economic factors would indicate a moderating of prices:
New mortgage rules and higher interest rates reduce the amount buyers can borrow.
Employment rates are peaking and can not reasonably rise more.
House prices have risen much faster than incomes, so a smaller share of households can buy at the new higher house prices. The price of a Benchmark house requires a $100,000 household income and an $80,000 down payment.
These moderating factors along with the know on effect of the media publicizing a slow down in Toronto, Calgary, and Vancouver real estate may sow the seed of doubt that will cause buyers to pause before offering to buy an Ottawa house for more than the asking price.
We expect Ottawa house prices will rise by 4% or stay flat in 2019 whereas CMHC predicts a rise in the neighbourhood of 4% to 6% this year. Homes are relatively affordable to local residents so a correction like the one seen in Vancouver with a benchmark house priced at $1.4 million seems very unlikely in Ottawa.
While prices have risen, the number of house purchases in Ottawa is relatively unchanged over the past three years and most of increased activity is in condos. Almost 13% more condos were bought in 2018 than in 2017. Perhaps people are buying student rentals?
2019 purchase growth is trending slower than than last year but resilient.
Month-to-month condo sales have been consistently higher over the past three years and if condos stay on trend, then Realtors specialized in Condos will do very will in 2019. Home buyers may find themselves involved in bidding wars.
At Mortgage Sandbox, when attempting to predict the future trajectory of home prices we look at five key factors.
From an affordability standpoint:
Income growth over the past decade has been relatively stagnant and employment levels are high with little room to add more jobs.
Interest rates are rising and that erodes affordability.
Economic stability is strong now it doesn't appear that it will get stronger in the future.
Overall, homes in Ottawa are relatively affordable but they are getting pricey for locals.
Ottawa real estate, has benefited from inflows a foreign real estate investors and local investment. Given the 38% rise in condo in sales activity since 2016, it would appear that these capital flows are rising. This means that home prices are now much less reliant on local economic fundamentals.
Eventually, Ottawa condo prices will need to be supported by local economic fundamentals.
Up until the beginning of 2018, governments at all levels were concerned about out of control real estate prices and were implementing policies to orchestrate a “soft Landing”. This implies that the current market conditions are in line with what the government wants so, at this time, Canadians should not expect government intervention to add stimulus to the housing market.
Supply has been trending upward and the market for Ottawa. A lack of supply would put upward pressure on home prices but increasing supply will reduce the need for households to “max out” their budget.
Sentiment is volatile, just look at how people once thought gold would hit $2,000 an ounce, that oil would reach $200 a barrel, and that Bitcoin was could only go up and up. Sentiment changes over time and can be strongly influenced by traditional and social media.
Sentiment seems to be very positive in Ottawa, stable in Toronto, but it has turned negative in Vancouver. Sentiment will determine people’s preference to stretch into high priced properties, however, there are limits to how much people can stretch their budgets.
Buyers of Ottawa houses certainly have less negotiating power. So long as you aren’t taking on an uncomfortable amount of debt and this is your “forever home”, 2019 will be a good time to buy. However, Bank of Montreal warns of a Canadian recession and this could lead to medium term house price drops if it materializes.
At the end of the day, a home is a place to live more than it is an investment. If you feel you need a home to have the lifestyle you’ve always wanted, then now is as good a time as any. Just be sure to drive a hard bargain and keep in mind that historically when interest rates rise, house prices drop. So don’t be surprised if the price if your home drops a bit after you buy it. It’s impossible for everyone to perfectly time the peaks and troughs of the market.
We recommend also you also read this article on the current risks present in the real estate market.
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