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Simeon Mitropolitski is a Canadian analyst, of Bulgarian origin, and a former syndicated columnist with the Bulgarian News Agency (BTA). He is the author of several hundred articles dealing with hot political and economic topics, both national and international.

He was part of the first group of Bulgarian intellectuals and students that began the opposition movement that finally put an end to the communist regime in this country in 1989, and in 1996-1997 participated in international observation teams during the elections in several Balkan countries - Romania, Albania and Bulgaria.

In 2002 Simeon and his family moved from Bulgaria to Canada where they live now in Montreal, province of Quebec. Simeon is a Master of Political Science from McGill University and a B.A. of Political Science and History.

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2003 was a good, perhaps exceptionally good, year for the Canadian real estate market. The final results were even better than many experts predicted 12 months ago. Housing starts reached their 14-year high with almost 220,000 starts and the average residential prices increased by almost 10%. The main two factors that determined the ultimate market scores were the good macro-economic news and the low mortgage rates. These factors are expected to play a major role in keeping the market in relatively good shape during 2004 although many experts are cautious of predicting another record year.

The year we just left was extremely good for the Canadian real estate market in general. At least two major factors influenced the good performances, the low mortgage rates and the good macro-economic results. The economy was doing well, despite the gloomy global environment and the unemployment was low. The banks have continued liberalizing their credit policy, by giving residential loans to families with smaller and smaller collaterals. There were some additional factors such as the national currency appreciation against the US dollar that played ambivalent role. On the one hand, it held back the small American investors looking for cheaper residences in Canada. On the other hand, it attracted high risk capital in search for even higher returns across the border. At the end of 2003 the Canadian dollar seems to have found some fragile equilibrium toward the US currency, so the capital return reasoning should play no major role in the months to come. On the other hand, more than 20% appreciation of the Canadian dollar will keep aside the individual American investors until some more balanced exchange rate is established.

The general good picture of 2003 and more conservative predictions for 2004 hide some provincial particularities. For example some Western and some Atlantic provinces during 2003 began receding from their 2002 peak market levels. On the other hand, British Columbia is expected to continue its positive development in the months to come. In the provinces of Atlantic Canada as well as in Manitoba and Saskatchewan the downward trends in 2004 are expected to be more accentuated than in some industrially more developed provinces. Ontario can sustain its high levels thanks to the huge international and inter-provincial migration flows. The final picture in Quebec will depend very much on the new economic policy, defended by the Liberal government of Jean Charest.

On the political front the power transition between the old and the current prime ministers of Canada, which took place in December 2003, went smoothly, much easier than many have expected given the bitter personal clashes in the past between the two politicians. In the name of the party unity and in order to appease the investors' fears, the ruling Liberal party that hopes to rule at least until 2008-2009 made the transition to look like a political honeymoon.

What are the general market forecasts for 2004? All of them are based on the assumption that the mortgage rates will go up and that this will hurt the market trends. But why the rates should go up if the inflation is still under control? The main reason for rates increase is believed to be the financial policy across the border with the US rates expected to go up sooner or later. Of course there are speculations when these increases will take place and of what magnitude. But even if we assume the inevitability of the US rates going up, the Canadian rates, which are higher than on the other side of the border, could wait where they are now until the new American policy forces the Canadian authorities to act.

By the way, some upward mortgage rate adjustment south of the border will bring down the Canadian dollar, decreasing the significance of the foreign high risk capitals. It will take some time between the initial US mortgage rate increases and the relative devaluation of the Canadian properties, making them more attractive for the small American investors. Hence the higher interest rates in the United States are not per se a sufficient condition that will hurt the Canadian real estate market. Even if such relation is established, it real effects may begin being felt not earlier than in 2005.

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