Economics

The housing market is a powerful indicator of the state of Canada's economy. CREA offers insight on data and trends, and helps REALTORS® make informed business decisions.

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Tracking Canada's housing market is a headline-making undertaking.

Buying a house is usually the biggest purchase most Canadians make in their life times. At the same time, Canada's real estate market plays a huge role in the overall domestic economy not just for the $22.3-billion contribution it makes to the country's gross domestic product but also because it is a leading economic indicator that policy makers and analysts use to help assess the health of the economy as a whole.

It's no surprise, therefore, that tracking the health of the housing market in Canada is a critical undertaking. It's also no surprise that when there are differences of opinion on the subject, it can be a headline-making undertaking. It's the job of CREA's economic research and analysis program to make certain that those headlines reflect as accurate a picture as possible.

Having a well-parsed understanding of the housing market in Canada matters on a number of levels, says CREA's chief economist Greg Klump.

"If you're a buyer, you certainly want to have an accurate picture of the environment out there. If you're a seller, you certainly want to have an accurate picture because otherwise it's tough to sell your home. And for REALTORS®, it matters because they have to know the environment in which they're operating."

Accurately tracking the health of the real estate sector is critical for REALTORS® and for their clients. However, it's even more critical, Klump said, for regulators at the Department of Finance, in the Office of the Superintendent of Financial Institutions and at Canada's central bank. "Because now you're talking about the ability to qualify for a mortgage. You're talking about certain risks to the financial system. You're talking about those things that go into the balance of factors that dictate how the Bank of Canada is going to set interest rates. And these regulators don't operate – they can't operate – in an economic vacuum."

CREA's economic analysis demonstrates that Canada's housing market is not overheated, as was sometimes argued by other commentators. "What makes the current situation a little bit different is that we've had interest rates at rock bottom levels for so long," said Klump. "That's why the Finance Minister has acted four times in as many years – he wants to prevent a housing-market bubble."

Another key indicator of the relative cost of a country's housing market is the ratio between incomes and housing prices. Canada's ratio has been higher than usual over the past several years, another point raised by commentators who argue that Canada is in a housing bubble. But even here, Klump said, all indicators are that things are returning to normal. "The ratio doesn't necessarily return to more normal levels by way of a sharp price correction in the housing market. What can happen is that house prices stabilize and then incomes, which have been static during the economic downturn, will catch up. That's actually part of a natural market cycle, and Canada's price-income ratio has already passed its peak."

It's a complicated picture, Klump concedes, and not one that lends itself to simple analysis. That's why the reports generated in his office are so important.

Home Price Index expands market reach

The number of Real Estate Boards participating in the MLS® Home Price Index, the truest measurement of the price of residential real estate in Canada, doubled during 2013, with two more Boards on the cusp of joining. Consumers in those markets that have joined the HPI have access through their REALTOR® to very granular information that gives the truest picture of price trends in those subareas in which the house that they're either looking to buy or sell is located.

"REALTORS® at my brokerage have embraced the data available through the Ottawa HPI, using it to enhance their presentations while providing their clients with a much more detailed explanation of the market. They report that their clients admit to gaining a deeper understanding of the trends and forces affecting the market and that they express a deeper appreciation for the role of the professional REALTOR® in the real estate transaction. The information that's available through the HPI really does permit a REALTOR® to demonstrate a high degree of both knowledge and professionalism."

Ansel Clarke has been a practicing REALTOR® for the last 30 years with the last 8 years spent as part of RE/MAX metro-city realty ltd's management team. He's been actively involved in volunteering with the Ottawa Real Estate Board, serving as President in 2012.