New house prices fall, but real estate sector still strong

After rising steadily since 2008, Statistics Canadas new housing price index has flattened out in September, following on a 0.1 per cent increase in August, but a new report says that's no cause for concern as Canadian real estate development will remain strong.

New housing prices fell in Edmonton, Windsor, Ottawa and Montreal, but those decreases were offset by a 0.5 per cent jump in Calgary, which is seeing higher labour and materials prices as it recovers from floods this summer.

The flat housing prices are no cause for concern, according to the Emerging Trends in Real Estate report from PriceWaterhouseCoopers and the Urban Land Institute.

Canadas relative economic health, especially compared to our neighbours to the south, has kept residential real estate strong, says the report, released Wednesday.

Trend to urbanization

Tighter mortgage rules and increasingly cautious banks have helped flatten condo prices, especially in North Americas hottest condo market Toronto, the report said. But, cranes are expected to remain visiblealong major city skylines as projects already in the pipeline are fully built and but the trend toward urbanization keeps demand buoyant.

The trend among young Canadians to live, play and work all in the same neighbourhood is driving a boom in both condos and urban office development, says the report.

The outlook for development of all types of property from residential to commercial is good in Canada, according to PwC partner Lori-Ann Beausoleil.

Transit is of increasing importance to all forms of real estate development, she said.

Look for transit

With challenging infrastructure in all major Canadian centres coupled with the urbanization trend, there will be a continued demand for retail, office and residential space in our urban centres where there is easy access to mass transit, she said.

Redevelopment of urban areas and creation of mixed use real estate are key trends for the coming year, she said, especially in centres such as Vancouver, Calgary, Toronto and Montreal.

But the report says real estate that is far from transit, or a long way from residential areas may become underused and is less likely to be redeveloped because of a significant shift in where people want to live.

Increased automobile commute times and snarled traffic are turning people off suburban living and many Canadians are choosing condo living over the house with a yard which comes with a frustrating commute.

These include the 20-somethings, who are establishing lifelong habits of urban living, and baby boomers, who want to give up snow-shovelling and be closer to the symphony, the report said.

Changes to office market

Older commercial or suburban properties that are not close to transit may wait in limbo for redevelopment.

The office development business is changing with more demand for open layouts, shrinking space use per capita,technology impactsand demands for energy efficiency, Beausoleil advises.

She said the Canadian real estate sector is likely to remain strong for the coming year, and the U.S. market is likely to recover.

The forecasts show that Canadian real estate players are able to both invest and attract investors. With the U.S. economy on the upswing, we are likely to see even more activity between the two countries, Beausoleil said.

Over the last several years, Canada has been the interesting real estate story while the U.S. markets were in distress, but now, we expect that the continuing U.S.recovery will be the real story. Still, Canadas strong market and the spending power of our consumers will continue to position us well in the international community as we head into 2014.