Positive outlook for Canadian real estate market as prices balance out in 2010

Record levels for Canadian property market

Activity in the Canadian real estate market in 2010 is expected to be well above that of 2009 and prices to rise 5.4% to record levels.

With Canadian economic growth rebounding from the recession, the unusually severe decline in sales activity in early 2009 is not expected to recur in 2010, according to forecasts from the Canadian Real Estate Association.

Low interest rates are expected to boost property demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario.

But in the second half of the year, national activity is expected to fall off as the last of pent-up demand is exhausted and interest rates begin rising, it says. Analysts also believe that interest rate increases will contribute to weaker national sales activity in 2011.

‘Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers requiring mortgage financing and support overall housing demand,’ said CREA President Dale Ripplinger.

The national average property price is forecast to climb 5.4% in 2010, reaching a record $337,500, with average price gains forecast in all provinces. The national average price increase will continue to reflect upward skewing from the rebound in activity among Canada’s priciest markets, particularly in British Columbia and Ontario, the CREA report added.

The national average price is forecast to ease by 1.5% in 2011 with modest average price gains forecast for all provinces except British Columbia and Ontario, whose share of national activity is expected to ease.

‘Improved financial market stability and recovering global economic growth mean that home sales activity in 2010 is unlikely to repeat the dive it experienced in late 2008 and early 2009,’ said Chief Economist Gregory Klump.

‘Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years, especially if the US economic recovery proves to be weak and protracted,’ he added.

CREA also points out that the decline and subsequent rebound in sales activity for property in the upper price spectrum in some of Canada’s priciest markets skewed average prices upward in the second half of 2009 and into 2010.

The outlook is for a more balanced real estate market. ‘A downward trend in national sales activity combined with an increase in listings will result in a more balanced market. Although builders are understandably more upbeat than they were during the depth of the recession, speculative building will likely continue to be held in check. As a result, while the real estate market will become more balanced, Canada will continue to avoid the massive realignment in housing supply and demand experienced in the US,’ concluded Klump.

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