How Ottawa became the country's hottest real estate market — and why this distinction could soon end
It still takes some getting used to, this idea that Ottawa has the country’s hottest housing market.
That’s because for most of the past decade-and-a-half, the capital region’s real estate scene has been completely overshadowed by frenetic activity elsewhere.
Prices for single-family homes soared in Calgary and Edmonton in the run-up to the 2009 economic recession, then flatlined in 2014 with the collapse of global oil prices. Coincidentally, that’s about when real estate markets in Vancouver and Toronto began losing their connection with reality. By April 2017, the benchmark price for single-family homes in Toronto was approaching a million dollars — up a stunning 28 per cent in just one year.
Fortunately, the buying mania in the biggest cities peaked, prompted by sticker shock, a foreign buyers tax and stress tests designed to ensure homebuyers can afford a jump in mortgage costs.
Meanwhile in Ottawa, prices for resale homes kept moving ahead gradually, as they have for much of the past 15 years. The year Toronto prices surged 28 per cent, single-family home values in Ottawa went up less than five per cent.
Since April 2017, Ottawa’s more measured, tortoise-like pace has pushed it to the head of line, at least in terms of growth.
House prices in Ottawa have jumped 17.5 per cent in the past two years to $451,400.
Only Montreal, among the six largest cities, has also seen home prices actually increase over the same period. Homeowners in Toronto, Vancouver, Calgary and Edmonton have all suffered declines ranging from four per cent to nine.
Don’t feel too sorry for most of the folks in the two craziest markets — going back five years, the average gain in single-family house prices is still nearly half a million dollars in Vancouver and $300,000 in Toronto, compared to $92,000 in Ottawa.
Despite the recent jump in home prices in Ottawa, the relative cost of shelter here is less than 90 per cent of the national average, compared to 94 per cent in Calgary, 161 per cent in Toronto and 215 per cent in Vancouver, according to the Conference Board of Canada, an Ottawa consulting firm.
Even so, for many Ottawa home buyers, the elevated state of the market has been frustrating, not least because a shortage of available listings has triggered so many bidding wars. There were only 2,900 single-family homes and 800 condos for sale at the end of April — down 18 per cent and 40 per cent respectively from a year earlier. That’s not much inventory in a capital region with more than a half a million residences.
The reason prices for listed resale homes didn’t escalate even faster was because builders have added 18,000-plus new homes to the mix over the past two years.
Will Ottawa continue to lead the pack nationally in terms of house price escalation? Perhaps for another year, but probably not much longer than that. A report published Friday by the Conference Board suggests broader economic trends will soon push national real estate markets back to more normal patterns.
In Ottawa, for instance, a couple of catalysts that earlier ignited home prices are weakening. The Conference Board points out the capital region recorded a net gain in population of 100,000 from 2015 to 2018, which naturally pushed up demand for housing. In the final year of this string, population growth hit a 17-year high of 2.1 per cent.
Much of the boost was the result of people moving here from elsewhere — last year about half the nearly 25,000 migrants came from abroad while the remainder started their journey from elsewhere in Canada. A big draw was the Ottawa region’s historically low unemployment rate when Alberta’s was soaring.
However, the Conference Board reckons the capital region’s population growth for the foreseeable future will slow to its more normal rate of 1.4 per cent annually. The reason: it expects a sharp drop in the growth of public administration jobs, which represent 20 per cent of the region’s total, from 2.9 per cent annually to just half that rate. This is thanks in part to Finance Minister Bill Morneau’s less-than-expansive federal budget in March and the winding down of aggressive hiring in local government.
Indeed, growth overall for the capital’s $79 billion economy ($2012) is expected to average just 1.9 per cent annually (excluding inflation) from 2020 to 2023 — significantly behind Toronto (2.5 per cent), Calgary (2.5 per cent), Edmonton (2.3 per cent) and Vancouver (3.0 per cent). Among the country’s biggest cities, the Conference Board predicts only Montreal will fare worse than the capital region, with average annual growth of 1.6 per cent.
The upshot: provided a recession doesn’t knock the stuffing out of the Conference Board’s projections, Ottawa’s economy should soon settle into its traditional mid- or lower-tier ranking.
That, in turn, would heavily influence key sectors such as housing — and put an end to Ottawa’s recent and unusual domination of the real estate market.