Ottawa Real Estate Insider-July

Hi lovely people of Ottawa,

I hope you are enjoying a well-deserved break with your loved ones during this scorching summer. I’ve been actively involved in several community events throughout June and early July and had so much fun. 

If you’d like, you can follow me on instagram at Xing Gao (@xingottawa) • Instagram photos and videos , where I’ve been sharing some of the incredible pictures and videos from these events. It would be wonderful to see some of you there!

Market Update

First, I would like to provide you with some latest Ottawa residential real estate market updates.  

As of June 2023, the Ottawa real estate market continues to demonstrate resilience in maintaining the status quo, despite the first negative reactions to the Policy Interest raise. Compared to May 2023, the average price has maintained on freehold, single-family properties, while condo prices saw a 1% month-over-month increase. However, the available inventory has decreased, which should be normal for June to have fewer new listings, but still quite low from 2022 and lower than the 5-year average in OREB’s stats. Properties are still being sold at the same speed as of May, which may or may not be a good indicator since with every interest raise, there will always be some buyers who would like to lock in their interest rate thus they had to make the purchase as soon as they can. 

I am completing an in-depth analysis of interest rate effect on housing, which I will public next week on my blog in anticipation of the next policy interest raise expected by the Bank of Canada (Bank of Canada to raise rates 25 basis points on July 12, possibly the last: Reuters poll | Reuters). I am providing some primer in this monthly update on the effect of central bank interest rates on housing prices. 

As per my last update, many socioeconomic factors influence housing prices, and the central bank interest is one of the most important one. The relationship between interest rates and housing prices is a topic of interest to policymakers and financial markets across the globe. There is a consensus in the literature that income and interest rates are two of the most important determinants of house prices (Kishor, N.K., Marfatia, H.A. The Dynamic Relationship Between Housing Prices and the Macroeconomy: Evidence from OECD Countries. J Real Estate Finan Econ 54, 237–268 (2017). https://doi.org/10.1007/s11146-015-9546-8). However, depending on countries, different macroeconomic factors could play a bigger or lesser role in determining the overall housing price. 

The central bank interest rate can affect the housing price in many ways, including the borrowing costs to purchase, investor behaviour and construction costs. The interest rate generally will provide an immediate effect on the housing price compared to other factors. A study from the Bank of Canada (Gorea, D., Kryvtsov, O., & Kudlyak, M. (2022). House Price Responses to Monetary Policy Surprises: Evidence from the US Listings Data; House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data (publications.gc.ca)) using listing data from the US found that housing prices respond to monetary policy surprises much faster than previously sought. The researchers found that contractionary monetary policy surprise lowers housing list prices by 0.2%– 0.3% within two weeks—a magnitude on par with the effect on stock prices.  

One research from 2002 by Sutton, G. D. (Explaining changes in house prices, BIS quarterly review, 32(1), 46-60. Explaining changes in house prices - BIS Quarterly Review, part 6, September 2002) found that decreases in real interest rates lead over time to increases in house prices (see graphic below) based on the empiric data from 1995 to 2005, with Canada and Netherlands being the countries most prone to price volatility after interest rate changes. 

source:https://www.bis.org/publ/qtrpdf/r_qt0209f.pdf

Canadian housing market responds to interest rate changes similar to what the academic literature has indicated in my research. I have compiled the average monthly Canadian housing price and the associated interest rates using data available from Statistics Canada and CREA from 2005 to June 2023, which demonstrated the relationship described in academic research:

In this graph, the blue line represents the average house price (monthly) in Canada, and the orange line represents the applicable interest rate for the month. We can see clearly that there is an effect, when the interest rate increases, there are generally negative responses of the housing price in the following periods. However, we can see that the average Canadian price is not necessarily following that general trend, especially after some sharp interest rate increases between 2017 to 2019, while the price drop is not that significant. 

From my review of the academic literature and data available, I think the policy interest rate plays a very important role in housing price determination, and it almost has an immediate effect on housing prices while other social-economic factors may take longer to fully manifest themselves (demographic changes, policy changes, etc.). However, there is a limit to the effects of moderate, predictable interest rate changes, as consumers/investors often adjust their behaviours based on the expected interest rate/costs, and the only way to dramatically shift the aggregate behaviour is to create a systematic shock (for example, the dramatic interest rate decreases in Spring 2020 which caused Canadian housing price to soar), and that may not be the ideal policy tool for the central banks to use to reign in the housing prices. My prediction of the Ottawa market is, regardless of the policy rate’s effect, the fundamentals of the Ottawa-Gatineau housing market (supply shortage, demographic growth, and good employment) are not going to change in the short term, thus prices are set to remain steady unless our economy dramatically shifts itself. Let’s see if my prediction holds true.

Events in Jul/Aug

source: https://ottawabluesfest.ca/

Here are a few events that I think are worth mentioning for July and early August:

• July 6 to July 16: BlueFest – the annual music festival near LeBreton Flats RBC Ottawa Bluesfest - Lebreton Flats Ottawa - July 6 to 16
• July 7 to October 6: Capital Pop-Up Cinema Schedule | capitalpopupcinema – free classic films projection for family
• July 13 (and other dates): Salsa at City Hall (free dance events) throughout the summer Home | Salsa at City Hall (square.site)
• July 15: H.O.P.E. Volleyball SummerFest – North America’s largest one day volleyball fest Home (hopehelps.com)
• July 15-16: Ottawa International Crafts & Book Expo at Horticulture Building at Lansdowne Ottawa Book Expo - Salon du Livre d'Ottawa
• July 20 to August 3: Ottawa Chamberfest – classic music fans must-attend annual events. Sites are throughout Ottawa Festival 2023 | Chamberfest
• July 21-23: Ottawa Asian Festival Night Market – but on Sparks Street this time! Sparks Street | Downtown Ottawa | BIA | Festivals (sparkslive.com)
• July 30: Thai Street Food Festival at Horticulture Building at Lansdowne Thai Street Food Festival 2023 (thaifest.ca)
• August 2 and beyond: Les Grands Feux du Casino Lac-Leamy – the annual fireworks display hosted by the Casino du Lac Leamy near the Canadian Museum of History Accueil • Grands Feux du Casino Lac-Leamy
• August 4-7: Ottawa International Busker Fest – free admission on Sparks Ottawa International Busker Fest – 27 Years of Smiles (ottawabuskerfestival.com)

Tips

The City of Ottawa hosted its Planning Primer on June 28, 2023. In this session, the City of Ottawa’s planning officials provided an overview of its urban planning process, including how zoning changes are processed, and different factors that could influence the planning process. Here is a recording of the session if you are interested June 28, 2023 Public Primer Recording.mp4 - Google Drive.

Another important project for the City of Ottawa is the Lansdowne 2.0 master plan. The City of Ottawa is planning a virtual, public engagement session on July 13, you can register here if you are interested: Lansdowne 2.0 | Engage Ottawa.

July is the perfect month to check on your roof, gutters and other building envelope components and engage experts to repair the roof, driveway, and outside decks if necessary. Since I coordinated some minor repair jobs for my clients in the past, I have a list of reputable repairpersons that could help you. Contact me for more information.

Wishing you a fantastic summer filled with unforgettable moments!