Lots of folks we’ve been chatting with lately have asked, “when it the Ottawa real estate market bubble going to burst?”
If you’ve been following the real estate market in Ottawa this year, you probably have heard the stories of prices surging and availability declining. It’s true, in the first half of 2019 homes that sold went for an average of 7.6% higher than those that sold in the first half of 2018. Additionally, the number of houses available for sale in the resale market is down over 27%
These and the state of the market combine to create an environment where a lot of people are thinking maybe I’ll just wait for the market to calm down, or bust…
…if it does.
I don’t have a crystal ball that can tell what the market in 2020 or 2021 will look like, but what I can do is take a look at the history of the Ottawa real estate market to learn what sort of factors in the past have affected the average value. This chart shows the 60-year history of average sales prices as reported by the Ottawa Real Estate Board, with a few highlights of socio-economic factors in Ottawa at the time.
You may notice that in the history of Ottawa real estate we’ve only had 2 times that average prices decreased a total of 5 years in 60 that showed a decline.
In 1960-61 during the U.S. recession at the time, Ottawa house values dropped by about 5%. From ‘62 to ‘65 they returned rising by over 7%.
The next notable event occurs in the 1980s when from 1981-85 mortgage rates rose to over 15% interest. During that mortgage crunch, housing prices rose considerably.
In 1991 the Federal Government placed a freeze on salaries which seems to have slowed price growth. However, we did not see a drop in prices until they began cutting jobs in 1995. Over that 3 year period, the average housing price dropped just under 6%.
Within 3 years the average housing price had returned to above the pre-dip rates.
Two more notable periods in the modern era are the dot-com collapse of 2000-2003 and the decline of Nortel from 2009-13. Both negative influences on our secondary employment sector showed no slowing of real estate prices.
Over the 60 year history of Ottawa real estate prices, the average growth has been 5.8%. Meaning that any decline in the market is offset by purchasing a year earlier, and historically any decline is recovered within 3 years.
There is a significant cost for waiting to enter the real estate market, especially in a climbing market and waiting for a lull or decline (which has only occurred due to drastic market conditions).
I don’t see any evidence of a real estate bust in Ottawa and should mortgage rates rise history has shown us that housing prices will too.