The average price for residential properties sold in and around valley towns this spring was up nearly 21 per cent compared to last year
Author of the article:James Bagnall
Just how intense can be seen in detailed data compiled by the Ottawa Real Estate Board. This newspaper tallied more than 5,000 residential resale transactions that closed between April 1 and July 31 — and divided them into two groups: greater Ottawa, and towns and townships in the surrounding valley.
We compared these datasets to the same four months a year earlier, pre-coronavirus.
The upshot: prices and volumes have recovered smartly nearly everywhere during the past few months, but the surge has been significantly more pronounced outside the city.
During the four months ended July 31, the average price for residential properties sold in and around valley towns was $413,000 — up nearly 21 per cent compared to the same period last year.
Within metropolitan Ottawa the average price for homes resold during the pandemic was $629,750 — up 15.4 per cent.
What’s notable in the case of the rural towns is the recent intensification of the price surge. Year-over-year gains in July were nearly 29 per cent compared to not quite 21 per cent for residential resales in the already overheated Ottawa market.
Despite a general shortage of listings, the number of transactions in rural areas in July jumped nearly 40 per cent to 536, compared to a 12 per cent rise to 1,120 in the number of sales reported in metro Ottawa. This suggests that when residential properties do hit the market, they don’t stay there very long before being snapped up.
Underlying this frenzy is a broader trend of house inflation. Prices began surging in Vancouver nearly a decade ago, and the pattern shifted to Toronto where prices peaked in 2017. A year ago, a similar trajectory took hold in Ottawa. Now it’s shifting into the hinterland.
Shane Lanigan, a broker with Keller Williams Integrity Realty has been following developments closely from Braeside, just west of Arnprior. “Until recently, Ottawa has seen double-digit increases while rural prices have been very reasonable,” he says, “That’s changed. There’s absolutely catch-up taking place here.”
During the pandemic, average residential prices in Braeside and nearby McNab jumped 46 per cent year over year to $468,400.
Lanigan says several factors are driving up values. Despite the recent hikes, house prices are still relatively cheap compared to Ottawa. Some of his recent buyers have included young couples, and military personnel transferring from other cities — Braeside is about 60 kilometres from the new Department of National Defence headquarters.
Lanigan adds that COVID-19 has been a catalyst in his sales area for two main reasons. First, the increase in the amount of telecommuting means people are less concerned about distances from their office. This is especially true of Lanigan’s clients who work in the tech sector in Kanata. Second, homebuyers are seeking more space.
“People can get more home for their dollars here,” Lanigan notes, “the lot sizes are bigger and there are more options for recreation.”
In metro Ottawa, the hunt for space has taken a slightly different form. Chelsea Hamre, a sales representative for ReMax Affiliates Realty earlier told this newspaper that high-end properties offering bigger lots and home offices are selling well. New Edinburgh, Lindenlea, Beacon Hill and Rockcliffe Park have all seen year-over-year gains in excess of 33 per cent.
The suburban district that includes Tanglewood witnessed the sharpest increase — a nearly 71 per cent surge in average prices to $556,500, based on a relatively small sample of 11 sales in the four months to July 31.
Other big gainers were the ex-urban districts of Stittsville ($716,900 average — up 44 per cent), Greely ($656,200 — up 36 per cent) and Manotick ($739,300 — up 27 per cent).
In Gatineau, a similar decline in inventory has also produced a jump in prices. The number of active listings in the second quarter dropped nearly 40 per cent year over year to 1,548 across the Outaouais, according to Centris while the median price for single family homes increased 11 per cent to $290,000.
In Gatineau proper, the median price was up 16 per cent to $285,000.
The recent emphasis on physical space doesn’t mean the market for condos is drying up. Brokers point out that downtown units are being snapped up by residents who want to avoid public transit, or by seniors who may have to forgo their annual trek to Florida or Arizona, and who do not want to be bothered with maintenance.
Are the recent price hikes sustainable? It seems unlikely in the long term. At some point, and no one knows when, there will be a reckoning for the hundreds of billions of dollars in additional government and private debt that have been enlisted to keep people and companies solvent while the pandemic rages.
But in the short term, multiple trends are conspiring to stimulate the housing market. Low interest rates for one. If a couple of wage earners put down 20 per cent on a $565,000 house — the blended average this year for properties in Ottawa and the surrounding valley — the monthly payments would be about $2,700 (based on 25-year amortization and 4.59 per cent interest rate). That’s starting to get pricey but it compares with average apartment rents of nearly $1,500 in the Ottawa area. In its most recent financial report, Minto REIT projected average monthly rents of $1,700 for new leases.
Perhaps the most important driver of prices has been that persistent shortage of supply combined with a sufficient number of buyers with seemingly secure jobs and ready access to capital — enough potential buyers to produce bidding wars. Normally the pressure on the resale market would be alleviated by the construction of new homes. However, COVID-inspired delays and a complicated approvals process for new subdivisions have conspired to reduce new supply.
The Canada Mortgage & Housing Corp. estimates Ottawa will see as few as 4,800 construction starts this year (6,500 on the high end) compared to an average of more than 7,600 new homes in each of the past two years. The federal agency predicts housing starts in Ottawa will not recover to pre-pandemic levels until 2023.
Offsetting the shortages of available housing somewhat, at least temporarily, is the virus-inspired decline in immigration and the number of university and college students attending class in person.
Another factor to bear in mind is how relatively few transactions are driving up headline price gains.
Those 5,000 plus residential units that sold between April and July in Ottawa and surrounding towns represent little more than one per cent of the total market — annualized, make that about three per cent.
Just as a relatively small basket of high-tech stocks are pulling up the stock market overall, recent real estate transactions are clearing at price levels that suggest an economic boom. Yet there is tremendous weakness in much of the stock market and economy alike.
David Rosenberg, principal of the securities research firm that bears his name, calculated Aug. 10 that 450 of the 500 stocks comprised by the S&P 500 “remain in various levels of pain.”
In other words, recent gains in both the housing market and stocks rests on a relatively thin base of prosperity. Buyer beware.