Realtors say real estate bubble fears unfounded

Elizabeth Howell
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Housing prices up 14% over two years, but experts say there’s no fear of sudden drop

A healthy labour market, coupled with low interest rates, are behind the strong appreciation in the value of residential real estate in the nation’s capital, several local realtors say.

David Sugarman, a sales representative at Coldwell Banker Rhodes. (Photo by Mark Holleron)

The resale price of Ottawa homes jumped 14 per cent between January 2009 and January 2011, according to statistics from the Ottawa Real Estate Board.

Taking into account both free-standing houses and condos, the average price in Ottawa stood at $329,657 in January 2011, some $9,000 more than last year and $40,000 more than in 2009.

“We have a very good job market and, as long as our job market remains strong, our housing market remains strong,” said the board’s president Joanne Tibbles.

She added Ottawa typically doesn’t experience the same fluctuations as other Canadian cities such as Toronto and Calgary.

Others say rock-bottom interest rates are increasing demand.

“It’s been fuelling the real estate market,” said Ray Otten, a broker at Renaud Otten.

“As long as the demand for houses is greater than the supply, there will be an increase even during times when incomes are not going up as fast,” Mr. Otten added.

Indeed, buyers were still entering the market even as their incomes remained relatively flat, said David Sugarman, a sale representative at Coldwell Banker Rhodes.

He attributed this both to first-time homebuyers getting help from better-off parents, and to the easy availability of listings both on and off the MLS systems.

“People’s ability to search and find things at a different pace has accelerated their buying and selling needs – not just for property but many, many things,” he said.

“The quicker the transaction, the more the turnaround time has been shortened, and everybody starts getting on board.”

With home prices accelerating faster than income, there are concerns that home ownership is becoming unaffordable for a growing segment of the population.

But the stability created by the presence of the federal government has some downplaying any suggestion that Ottawa is in the midst of a real estate bubble.

“It feels like we’re not on a peak ... We’re a consistent (market),” said Steve Tusco, an independent broker in Ottawa.

If anything, he said, there are signs things are gradually cooling.

“Last year, when I bought my place, I had to go over the asking (price). This year (houses I represent) go for under asking.”

Organizations: Ottawa Real Estate Board.Taking

Geographic location: Ottawa, Toronto

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Recent comments

  • BearRE
    March 17, 2011 - 21:37

    Let me reclarify. 14% over two years is barely keeping up with inflation PLUS carrying costs. Take a house that is $320000 in 2009. It has now appreciated to $364800 ($44800 fake wealth increase , i.e. no liquid cash in hand from it, but a sense of 'wealth'). A person with 5% down, paying 4.9% interest, would spend $29600 in interest, $6000 in property tax, and assume $2000 maintenance. INFLATION alone (pegged @ 3% both years) even though we know its more than that, has eroded the value of $320000 to $301088 in todays dollars, therefore a loss of $18912 in REAL terms. Therefore, the person has now lost $56,512 in that 2 years, without blinking an eye. And that is hard cold cash out the window, even though the person feels richer with an 'overvalued' house that barely covers inflation plus costs. Get it people? Houses are NOT investments! Banks take the money you are giving them and invest in real stuff, which they make profits on. Houses are for the financially inept. If your house price increases less than 5% per year, then you are actually LOSING money on the house without knowing it.

  • Brian
    March 17, 2011 - 09:19

    Realtors and Brokers had better had better get their collective heads out of the sand. Canadian household debt has long surpassed the critical level. It is not sustainable primarily because of over 5 million first time home buyers across the Country, a 22% increase, who entered the real estate market in the last 12 years with little or now money. Mortgage rates have already inched upwards and will continue to do so due to world economics. When all these first time home owners have to re finance their mortgages over the next five years, they will be in serious trouble. History as always repeated itself and Canadians are no different than our neighbours to the south who also over extended themselves. It comes down to simple math and learning to live within your means. Far too many people are just going to have learn the hard way when they learn that their carrying costs have just doubled and they have to turn the keys to their home over to the financial institution. This has been happening in Toronto for the past year, but you won't hear this on the news....yet! Realtors and Brokers may be smart to look for another job, otherwise they will not be paying their own bills or be able to put food on their table. These are the last people you want to talk to regarding ANY downturn in the real estate market for obvious reasons. Good luck to all.

  • Kevin
    March 17, 2011 - 08:22

    Andy: The 14% was over two years, but you've come across a good point. Inflation over that period, according to the Bank of Canada, could account for about 4.25%... So housing in Ottawa has gone up by a bit over 3 times the rate of inflation. I am not so sure about the PS... According to the TB website, the 2008 to 2009 pay raise, for a given level and step, was about 1.5%. If you were also able to get a step increment (i.e. not already at the top step) the step would account for another ~2.5%, for a total of 1.5 or 4%. The 7% increase reminds me of what happened to housing during the tech boom about 10 years ago.

  • BearRE
    March 16, 2011 - 21:08

    14% over two years is barely keeping up with inflation and carrying costs. Take a house that is $320 000 in 2009. It has now appreciated to $364800 ($44800 phantom wealth increase , i.e. no liquid cash in hand from it, but a sense of 'wealth'). A person with 5% down, paying 4.5% interest, would spend $26800 in interest, $6000 in property tax, assume $2000 maintenance (

  • Andy Rodriguez
    March 16, 2011 - 10:17

    This article remind me when Bernake and Paulson were reassuring the American that there were not problem with the housing market in USA just before it collapsed in 2007-2008. The same economic principles apply to Ottawa. Artificial Low interest rate is the problem, and people in Ottawa will realize it as the Americans did. We still trying to recover from the financial crisis that hit the world in 2008-2009. Let;s hope this realtors are right, but 14% appreciation in just one year seems like the beginning of a Housing Bubble. Because it has never happen in Ottawa before, does not mean it will not happen here. If we want to prevent a housing bubble in Ottawa, there should be more sound lending standards. Let's hope that people do not make the same mistakes that the Americans did and that they do not use their homes' equity as ATM machines.