Wednesday, June 21, 2006

Flat Housing Market Expected

An Ottawa real estate market slowdown will lead to a flat housing market and a slower economy in Canada over the next two years.

New forecast predicts that real estate prices in Ottawa will not fall significantly, but sales volume will drop more precipitously than prices as the price cycle lags behind the volume cycle.

The number of homes sold will drop as owners decide not to sell in a weaker market.

The real decline in the housing market will come in "residential investment," which includes construction of new homes, repair and remodeling, and brokerage commissions on the sale of new and existing homes.

But the decline in residential investment and the associated decline in construction employment will not be matched by a decline in manufacturing employment, as the latter has not yet recovered from the recession of 2001. Unless there is a decline in manufacturing employment, the national economy will avoid recession.

In Ontario, there is not enough vulnerability in the usual sources of employment loss to create a recession, and the historical record suggests that average home prices do not usually fall without this kind of job loss.

But as in the national forecast, there will still be declines in real estate and some associated job losses in real estate-sensitive sectors.


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