As the volume of home sales across Canada stagnates, there’s one place where you can still find lines out the door for open houses on a Sunday afternoon: Ottawa.
The nation’s capital is in the midst of a real estate frenzy that experts say is unlikely to fizzle anytime soon.
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Bidding wars are becoming common in popular districts, and with them, more homes going for tens of thousands of dollars more than the list price (one modest detached home in the Little Italy neighbourhood went for a whopping $195,000 over asking in April, according to a recent CBC report).
It’s no longer unusual to see multiple offers, lightning-fast closings or a waving of conditions, and listings are vanishing almost as quickly as they appear. Well-situated tear-downs are selling for in excess of $500,000.
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In some pockets, it certainly looks — and feels — like the unsustainable, runaway markets that crushed the dreams of would-be buyers in Toronto and Vancouver last year.
But the explanation for Ottawa’s current trends lies in the basic realities surrounding supply and demand, explained Ralph Shaw, president of the Ottawa Real Estate Board.
“It’s macro-economics,” he said.
“The demand is there because we’re in such a strong economy in Ottawa right now. The lowest unemployment I think I’ve ever seen … there’s like 600 or 700 posted jobs that (local businesses) can’t fill.”
With the highest median household income in the country (more than $86,000) and growing employment via the tech sector and the federal government, locals enjoy better-than-average job security and significant purchasing power.
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Still, recent numbers make it clear that Ottawa remains a seller’s market.
At the end of April, there were fewer than 3,600 residential properties available to buy, a drop of 24 per cent from the same month in 2017. On the demand side, April also saw a total of 1,616 residential sales, up 9 per cent year-over-year. Condo sales were up a whopping 33 per cent, and around a quarter of residential properties have been selling above list price.
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The speed of the changes sets off some alarm bells for Josh Gordon, an assistant professor at Simon Fraser University’s School of Public Policy, who has studied Toronto and Vancouver’s housing markets extensively. He said there are a few things governments should be watching for that would portend Ottawa heading down the same path.
One is an increase in foreign buyers, which the city has indeed witnessed. About 2.5 per cent of transactions now involves foreign buyers, a higher percentage than in the Greater Toronto Area.
“Foreign buyers can heat up a market even if they’re a small share of the market,” Gordon noted. “Foreign buyers coming in Montreal is a big part of that story.”
Otherwise, he said, he’d watch for a surge in sales driven by rapidly increasing demand (again, Ottawa checks that box) and prices rising fastest in the wealthiest neighbourhoods as people who have cashed out big in Toronto move to the capital.
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If the patterns seen in the GTA and Vancouver begin to develop in earnest, Gordon said, then governments may want to consider a foreign buyers tax to cool things off — as they did in Toronto.
“It’s actually a very poorly designed foreign buyers tax (in Toronto), basically applied to 5 per cent of foreign buyers. But yet the market totally changed, sales just dropped through the floor, inventory shot up. Inventory was up 108 per cent in four months, and that’s just because you changed the mindset.”
But Shaw argues that Ottawa isn’t heading for the kind of crisis that necessitates government intervention.
“In all fairness, we’re not seeing that,” he said, adding that there are good reasons for the surges in demand right now.
Aside from stable employment numbers and an influx of people from less affordable cities, buyers in Ottawa were trying to get in ahead of the new mortgage stress test with financing pre-approvals late last year. They then went house-hunting over the winter and early spring.
Yet another factor is city hall’s restriction of urban expansion, Shaw said, which in turn restricts the inventory. But even then, Ottawa has a “relief valve.”
“We’ve got Arnprior, Kemptville, Almonte, Carleton Place, Casselman,” he noted.
“Within 20 kilometres outside that urban boundary we’ve got lots of communities that are just jumping all over this … Toronto has its Greenbelt, it has Lake Ontario. We don’t have the U.S. border and an ocean and mountains like Vancouver.”
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Overall stability?
The average sale price in Ottawa, still hovering around $455,212, supports Shaw’s argument. The benchmark price across the city has seen an increase of just 4.2 per cent year-over-year, which seems downright reasonable compared to other urban centres across Canada.
But the devil is in the details. Once you break it down by neighbourhood, things begin to look a lot less rosy for buyers with their hearts set on living in the downtown core near the new light-rail transit line, or in adjacent, family-oriented neighbourhoods like the Glebe, Westboro or New Edinburgh-Lindenlea.
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The benchmark price in the latter neighbourhood, for example, sat at $779,200 in April — representing an increase of 31.4 per cent in just 12 months. It is rapidly moving out of reach for everyone but the wealthy.
“(The prices) are high for our expectations,” Shaw acknowledged. “Certainly at this point, the prices have escalated for sure, but they’re still within reasonable numbers.”
Overall, he predicted, Ottawa’s seller-friendly market won’t be shifting anytime soon.
“I don’t see any let-up at this stage. It seems to be across all price points … I think we’re going to continue into this strong market right through the summer.”
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