The latest economic numbers show nothing but good news for Canada's housing markets.

Strong job growth and low interest rates are creating record sales through the country's Multiple Listing Service, and prices are expected to rise an average of seven per cent this year.

Forecasters believe that interest rate increases are looming in September and early next year, which will slow down the resale market in 2003. However, sales are still expected to be robust, and resale prices will rise another three per cent next year, according to the latest forecast from Canada Mortgage and Housing Corp. (CMHC)

The new home market is also doing well, with housing starts at the highest level in 13 years. Like the resale market, it's expected that construction of new homes will slow down next year in response to higher interest rates.

A recent report from TD Bank Financial Group says that a weak global economic recovery is delaying interest rate increases in the United States, Europe and Australia, but that Canada is "a notable exception to this trend, with the robust growth in the Canadian economy likely to elicit another 25-basis-point rate hike" in September.

While interest rate increases traditionally have a negative impact on housing, it will be offset by increased consumer confidence as the economy continues to improve. But in the meantime, reports suggest that real estate is benefiting from Canadians' lack of confidence in other investments.

A study commissioned by the Toronto Stock Exchange says only 38 per cent of 2,500 investors polled said they plan to buy more stocks next year. When that same question was asked in 2000, about half of respondents said they would buy stock during the next year. The study also found that 47 per cent of Canadians who do not currently have stocks, are not planning to purchase any stocks or mutual funds during the next year. It's expected that some of that investors' money will find its way into the real estate market.

In July, a reported $1.1 billion was pulled out of mutual funds by leery investors. A Canadian Press story says that many Canadians are cashing in their mutual funds to purchase vacation properties. Recreational markets across the country are doing well, with waterfront properties posting price hikes of as much as 20 per cent over last year.

Another positive aspect of the strong real estate market is the spin-off effect it's having on some retail sales. For example, Leon's Furniture, a furniture and appliance retailer, reported higher second quarter profits than last year, thanks to the surging housing market. Other retailers, such as home centre RONA Inc., have also posted good profits, and the home renovation industry is doing very well.

TD Bank economists predict that Canadians will continue to spend money. They say that Canadians are piling up "high levels of indebtedness" but "there is good reason to believe that personal expenditure will not falter."

Craig Alexander, a senior economist at TD Bank Financial Group, says the purchase of a home usually requires taking on mortgage debt, but it also creates an asset on the personal balance sheet. Interest payments must be made, but the principal payments act as a forced savings plan and the monthly outlays are often less than rental payments.

Alexander says "current debt levels are not setting off warning bells. However, what really matters for consumer activity is the change in debt-service costs. Despite the prevailing high debt load, total interest payments represented only 7.8 per cent of personal disposable income in the first quarter of 2002, the lowest level in more than two decades."

The TD report says the key drivers of consumer activity remain positive, with job gains, declining unemployment, rising incomes and high levels of consumer confidence "acting in concert."

The CMHC forecast calls for 401,400 MLS sales in 2002, an all-time record, and 389,700 sales in 2003. The federal housing agency is predicting the average resale home will sell for $183,600 this year and $189,700 in 2003. On the new home side, it's predicting 182,200 housing starts this year and 174,000 in 2003.

Published: August 29, 2002

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Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .