Ottawa’s Real Estate Market: The Rise & Future

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Of all the major cities and their popularity in Canada, we are certainly not used to Ottawa becoming so big in real estate!

And why is this happening? For most of the past decade-and-a-half, frenetic activity across the country has completely taken Ottawa off the map, in terms of media coverage.

Let’s look back a bit 10 years ago country-wide. 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 soaring way above affordability prices. By April 2017, the benchmark price for single-family homes in Toronto was approaching a million dollars — up a stunning 28% in just one year.

Fortunately, the buying hype in the biggest cities peaked, prompted by sudden shock due to foreign buyers tax and stress tests designed to ensure homebuyers can afford a jump in mortgage costs.

Meanwhile in Ottawa, business kept going on quietly; prices for resale homes kept moving ahead gradually, as they have for much of the past 15 years. The year Toronto prices surged 28%, single-family home values in Ottawa went up less than 5%.

Since April 2017, Ottawa’s more measured, tortoise-like pace has pushed it to the head of line, at least in terms of growth. Talk about chasing the pack quietly…

House prices in Ottawa have jumped 17.5% 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 4% to nine. Montreal has really been getting the least attention, especially because of Vancouver and Toronto.

Prices may be ridiculous in Toronto and Vancouver, but that doesn’t mean it’s out of reach for its residents; five years back, 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. It’s a HUGE difference.

Despite the recent jump in home prices in Ottawa, the relative cost of shelter here is less than 90% of the national average, compared to 94% in Calgary, 161% in Toronto and 215% in Vancouver, according to the Conference Board of Canada, based in Ottawa.

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% and 40% respectively from a year earlier. That’s not much inventory in a capital region with more than a half a million residences. Low supply, high demand!

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’s real estate market continue to lead the pack nationally in terms of price escalation? Perhaps for a few more years. A recent report by the Conference Board suggests broader economic trends will soon push national real estate markets back to more normal patterns.

A couple of catalysts that formerly ignited home prices in Ottawa 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%. Our capital region is becoming more and more popular!

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. It’s not just a student and government city anymore!

The Conference Board also believes the capital region’s population growth for the foreseeable future will slow to its more normal rate of 1.4% annually. Why? Economically, it expects a sharp drop in the growth of public administration jobs, which represent 20% of the region’s total, from 2.9 % 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% annually outside 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%.

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. The party won’t last forever?

As a result, this could put an end to Ottawa’s recent and unusual domination of the real estate market.