Common-sense genius of Canadians

As each week passes, there is more news of the challenges facing the nations of the world as they grapple with how best deal with their economic difficulties. Canada faces a similar dilemma and has come up with its own stimulus package and the liklihood of doing more if necessary. 

In Manitoba, the economy is performing exceptionally well under the circumstances. Even manufacturing that has been negatively impacted in other regions of Canada, especially in Ontario, has dropped off less significantly in Manitoba. Winpak announced its 2008 profit jumped 22 per cent and plans to double its capital expenditures in 2009. The lower Canadian dollar is helping the Winnipeg-based plastic-packaging manufacturer make inroads into the U.S. market where the majority of its sales occur.

At a WinnipegREALTORS® commercial division breakfast last week, Sean Barnes of PCL Construction (winning contractor for the Canadian Museum for Human Rights) said as much as $1.5 billion in new projects are coming up for bid this year in Manitoba and billions of dollars for more projects is slated over the next five years. 

While Manitobans have a right to be nervous about all the bad news they hear and read, they should also be thankful Manitoba is in good shape to weather the economic storm.

Even if real estate activity — resale and new — does fall off this year, WinnipegREALTORS® and the Manitoba Home Builders’ Association are coming off some outstanding years. But to expect that momentum to be maintained forever is a pie-in-the-sky dream. Real estate and new home construction is still cyclical and does ebb and flow with the economy. 

The reality of the real estate market is that the vast majority of home purchases are long-term investments. And over the years, real estate has proven a good investment for accumulating equity . 

“One thing has remained constant about real estate in Canada — over the long term, it has not only given us the pride of homeownership, but it has paid off as an investment,” according to the Canadian Real Estate Association’s website

Not all markets are the same, according to the website.  The national average price change for all MLS® residential sales year-over-year, shows the nation is now in a real slump — the average residential sale price dropped from $308,322 in January 2008 to $273,601 in January 2009. These numbers closely proximate Ontario’s average price drop which shouldn’t come as a surprise, given its population and dominance in sales compared to many smaller Canadian provinces and territories. Besides Ontario, the only provinces to experience a real drop in average residential price in January were B.C., Alberta and New Brunswick.

Of course, one month does not a year make, and things do vary month to month in all local real estate markets. However, it’s better not to compare national averages to local markets — they can be entirely different.

These differences reinforce the need for a potential seller to call their local REALTOR® to find out exactly what is going in the real estate market. 

REALTORS® provide valuable information to sellers as to how long homes are taking to sell within particular price ranges, deciding upon an appropriate selling price for your home and offers that can be reasonably expected. Multiple offers are still occurring, but not to the same extent as in 2008 when there were far fewer listings available. 

There are a number of questions to ask in a changing real estate market, although the answer depends more on your own situation than market conditions.

A REALTOR® knows the local market; work with a REALTOR® to develop an effective selling strategy.

Is the Canadian housing market heading towards the same fate as in the United States? The experts say no, as there are several fundamental differences. For example, Canada has more conservative mortgage lending practices, fewer speculative buyers and no where near the same glut of housing supply.

Some interesting and timely excerpts from a 2009 Newsweek article entitled, A Worthwhile Canadian Initiative, reinforce the differences between conditions in the U.S., the world and Canada: “Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th. Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn’t grown in size; the others have all shrunk. 

“So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1— compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking. Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 per cent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn’t deductible up north. 

“In addition, home loans in the United States are ‘non-recourse,’ which basically means that if you go belly-up on a bad mortgage, it’s mostly the bank’s problem. In Canada, it’s yours. Ah, but you’ve heard American politicians wax eloquent on the need for these expensive programs — interest deductibility alone costs the federal government $100 billion a year — because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight per cent of Americans own their own homes. And the rate of Canadian homeownership? — It’s 68.4 per cent. 

“Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America’s by far (accounting for 9.7 per cent of GDP, versus 15.2 per cent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; ‘healthy life expectancy’ is 72 years, versus 69. 

“American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario, and not Michigan, has been North America’s largest car-producing region. 

“If President Obama is looking for smart government, there is much he, and all of us, could learn from our quiet — OK, sometimes boring — neighbours to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative. 

“When President Obama meets Prime Minister Harper this week in Ottawa he may well indeed seek out much needed advice on how to encourage responsible homeownership Canadian style.”