The economy in North America may be shaky, but it looks like somebody forgot to tell home buyers in Canada's largest city. Despite the sharp economic downturn after the terrorist attacks on Sept. 11, Toronto set a new record for real estate sales in the month of September. It's the fifth consecutive record-setting month this year, and prompted the local real estate board president to tell a newspaper: "Toronto seems to be on another planet."

While housing markets in the U.S. and other parts of Canada took a breather in the aftermath of the September 11th terrorist attacks, Toronto home sales just kept going. The Toronto Real Estate Board says there were 5,021 homes sold through its Multiple Listing Service in September, up three per cent from last year. There's little doubt that 2001 will be the best year for existing home sales that the city has ever experienced.

Low interest rates are credited with keeping sales strong, along with strong job creation that has driven the Toronto market for several years. The population in the area continues to grow, and with rental vacancy rates at extremely low levels, home buying has been strong for both existing and new homes. Consumer confidence has been good helped along by income tax cuts from both the provincial and federal governments.

However, the latest economic forecasts say that Torontonians can't expect this rosy picture to continue. Job creation has slowed considerably, particularly in the automotive and high-tech sectors, and recent layoffs in the airline industry will hurt. Toronto is also hurting because of the sharp drop in tourism since the September attacks. One of Canada's large banks recently forecast that Ontario's growth rate will trail all other parts of the country in the coming months.

Nevertheless, with mortgage rates expected to stay low or even drop further, most analysts predict Toronto's housing market will experience a soft landing rather than a hard fall. Across Canada, most resale real estate markets were doing well prior to September, with national sales setting a new record in August, and apparently heading for a new year-end sales record. The national sales for September are not yet available, but it seems that most markets have not slowed down too much.

In British Columbia, Re/Max reports that the market softened immediately after the attacks, but have now returned to normal levels of activity. Re/Max says B.C. sales were up 25 per cent January to August compared to last year. A new provincial government is credited with boosting consumer confidence. And with a jittery stock market and low interest rates on "safe" investments such as guaranteed investment certificates and saving bonds, many investors are expected to turn to housing as an alternative. Vancouver already has the highest housing prices in the country.

B.C. is also waiting to hear what happens in the controversial softwood lumber dispute between Canada and the U.S. Several mills in the province have shut down while officials from the two sides try to hammer out a solution to the long-running dispute.

Home ownership costs in Canada dropped during the first half of the year, says a report from RBC Financial Group. The housing affordability index, which measures the proportion of pre-tax income needed to service the costs of owning a home in Canada, declined in B.C., Ontario, Quebec, Alberta and Saskatchewan. Manitoba and Atlantic Canada were the only regions that didn't see improved affordability, because housing price increases offset the lower interest rates there.

"While the housing market will feel the impact of a cooling off in demand, we think it's balanced and resilient enough to avoid a downturn," says RBC economist Carlos Leitao. "The ominous mix of over-development and high inflated house prices that caused so much damage in the late 1980s and early 1990s simply isn't present this time around."

He says affordability may improve even more as the Bank of Canada continues to push interest rates down in the next few months to combat a weakening economy.

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