There has been a lot of media hype about the collapsing U.S. real estate market. Historically, when the media frenzy hit such a fever pitch, the event was already over!

There is no question that softening demand combined with 17 consecutive interest rate increases by the U.S. Federal Reserve took the steam out of some speculative housing markets.

Phoenix, Dade County in Miami, Orange County in Southern California, San Diego, Las Vegas all experienced speculative surging and unsustainable price growth in the last 18 months. It is this last gasp that is being clawed back.

Any market that begins to treat real estate as a short term speculative investment wills self correct as affordability and employment growth subside.

Housing as a long-term investment for shelter is very secure.  It is interesting to note that the correction in the overheated U.S. markets is actually occurring very quickly. Historically, when real estate markets have adjusted from rapid price inflation the correction is painfully slow. This time the consumer is getting ahead of the price curve and taking immediate action. I think it’s a reflection of the dot.com bust of 2001. Your smallest loss is your first loss. The bottom or balance in U.S. real estate will be found much faster than in previous correction.

So far the GTA is dodging the U.S. housing bullet. The escalation in values since 1997 has been almost half that of the super hot U.S. cities. Immigration to the GTA continues to be nearly 50% of all newcomers to Canada. Interest rates remain significantly below our U.S. counterparts. Income growth has continued modestly upward putting less pressure on affordability.

The primary concern for the GTA is employment growth. The strong Canadian dollar puts real competitive pressure on our manufacturing sector. They have been bleeding jobs for over a year. This will eventually lead to greater productivity and hence higher net incomes. But in the short term, the job market is a red flag causing a softening of demand, particularly in 905 products.

A cautionary note is sounded on the high rise condo scene. This market has been, in recent months, highly speculative with sales driven by the local broker community. Should interest rates remain level or even decline slightly in response to lower economic growth here and in the U.S. the high-rise scene will remain very buoyant. But it is very volatile at the moment. The recent changes to the Royal Bank’s lending policies (a major player in the high-rise market) are probably reflective of a more cautionary stance.

It never ceases to amaze me the strength of the consumer’s knowledge and judgment. Amidst glaring headlines of impending real estate recession over 1400 people lined up at Milton Trails new opening this weekend and Arista, Greenpark and Fieldgate sold 208 new homes in 4 days!

Real Estate is a regional phenomenon. The GTA is an island at the moment in a sea of change throughout North America. The conditions for change are evident but it is a modest change in temperature – a cooling effect that will shift new housing demand back to more normal levels of annual absorption – maintaining a steady healthy, long-term investment climate.