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Will the Ottawa Real Estate Market Crash?

Today we’re going to talk about a topic that seems to be bubbling up around the internet these days: real estate market crashes. We don’t think the Ottawa real estate market is going to crash and we’re going to tell you why.

Now keep in mind that I’m not an economist or a fortune teller. But I am a real estate agent and I spend every day in the trenches. I know this market, I know what it’s doing on a day-to-day level, and I know its history.

60 years of growth shows that the Ottawa market is strong and stable. In those six decades, we’ve seen cycles. High growth preceded and followed by moderate growth. In the three years before the pandemic, we were already seeing an upswing. We were cycling out of low growth into moderate to high growth.

Understanding that Ottawa real estate was already trending up gives us some perspective on what’s happened since the beginning of the pandemic. We didn’t start at low growth and explode. The pandemic accelerated and amplified the cycle already in motion.

So why are we hearing about the market crashing? We think it’s because of the rapid increase in housing prices over the past two years. It has been a wild ride, but that isn’t what creates a market crash.

First, let’s talk about real estate market crashes in general. Most of us, when we think about these crashes, think about what happened in the U.S. in 2008. We imagine foreclosures and plummeting prices and serious economic repercussions.

Right off the bat, we need to reassure ourselves that we are not in that situation. There were factors in play in the U.S. in 2008 that do not exist in Canada. Namely, it was too easy to borrow a lot of money.

That is not the case in Ottawa or anywhere else in Canada. Mortgages are hard to get and lenders make very sure that buyers will be able to pay the mortgages they take out.

Now that we have that out of the way we can talk about the perfect storm of circumstances that traditionally causes housing markets to correct or crash. That perfect storm is a combination of high interest rates, low demand, and high unemployment.

Let’s talk about those factors one at a time, and what they look like in Ottawa right now.

Interest Rates

We’ll tackle interest rates first. The Bank of Canada raised interest rates by a quarter of a point in early March. That increase is too small to make most buyers think twice about taking out a mortgage.

Conventional wisdom holds that raising interest rates will decrease demand in a stressed market by pricing out a segment of potential buyers. And this will undoubtedly happen, even with a minimal hike. But the number of buyers who will reconsider being in the market is small.

Ottawa homeowners spend less of their income on housing than any other major Canadian city. There is still room for market growth here.

The demand in the Ottawa housing market is also impacted by more than low interest rates. Even with further hikes anticipated, that alone won’t make much of a dent in the number of people looking for homes.

Demand

We’ve talked a lot about the high demand for homes in Ottawa and the problems of low supply. Low supply is going to persist. Even if the area somehow magically produced twice as many homes in the next ten years as it did in the last decade, supply would still not outpace demand.

And let’s be honest, we aren’t going to see such a massive increase in new construction. Ottawa does have a plan to expand that includes building more high-density housing, a first step in the right direction. We’re already seeing building permits increase.

Demand is tied to the number of people in the area looking for homes. That means it’s tied to immigration, from both outside Canada and interprovincial migration. Canada is growing faster than any other G7 country and Ottawa intends to welcome an additional 1.3 million residents in the next two years.

No matter how many new homes are built, or how many older homes go on the market, there is going to be steady demand. People are moving to Ottawa, and that’s going to continue.

Unemployment

The third factor that drives real estate market crashes is unemployment. High unemployment means fewer people with the means to enter the market. Since the tough days at the beginning of the pandemic, the Ottawa area has seen a steady recovery.

As the seat of the Federal Government, Ottawa’s economy has always been more stable than other areas. The abundance of private tech companies, public and private colleges and universities, and health care facilities all contribute to a solid economic base.

Ottawa’s housing market has shown itself to be remarkably resilient even in the most precarious of times.

None of the three major factors that conventionally precede a housing market crash are in play. With low unemployment, interest rates not rising quickly, and demand continuing from new residents, the Ottawa real estate market is weathering this storm like it has others in the past.

It’s easy to get swept up in doom and gloom when there is so much uncertainty in our daily lives. The war in Ukraine will affect the supply chain, the pandemic will continue, and it makes everyone uneasy.

But if you’re living in Ottawa or planning a move to Ottawa, we don’t see an impending real estate market crash. We see continued high demand in a market that has room for growth.

Keep tuning in for the latest on market conditions and the inside scoop on buying or selling a home in Ottawa. Be assured that we keep a very close eye on the Ottawa housing market and we’ll do our best to keep you informed and up to date.