Canada’s real estate market to cool slightly after strong first half

Published on by Association des Propriétaires du Québec

Topic(s): Real estate

Source: Royal Lepage

Canada’s real estate market to cool slightly after strong first half
Canada’s residential real estate market will start to slow in the second half of 2010 after two quarters of strong price appreciation and sales activity, according to the Royal LePage House Price Survey and Market Survey Forecast released today. While market fundamentals remain strong across most major centres in Canada, sales activity was overly ‘frontloaded’ in the first half of the year and is expected to cool off for the third and fourth quarters. Prices are also expected to steady in the second half of the year.

In the second quarter, the average price of a detached bungalow in Canada was up 9 percent to $331,868, compared to a year ago. Over the same period, standard two-storey homes rose 8.7 percent to $367,835 while standard condominiums rose 7.3 percent to $230,014. Royal LePage is forecasting that by the end of 2010, home price appreciation will average 6.8 percent year-over-year, while home sales will increase by just over one percent compared to 2009.

“We have seen an unusual pattern of activity in the housing market over the past 12 months, with the market experiencing a surge of activity and price increases that peaked in the fall of 2009 rather than spring. Early 2010 has followed a more typical seasonal pattern with prices and activity peaking in the second quarter,” said Phil Soper, president and chief executive, Royal LePage Real Estate Services. “An expected increase in the supply of homes on the market will now bring stabilization in prices and in some cities we will see both prices and unit sales decline towards the end of the year. This should not be interpreted as a severe correction but rather a natural reaction to the market having peaked quite early this year.”

The surge of activity in the first and second quarters of 2010 corresponds to a number of significant regulatory and financial industry changes that affected home buyers over the same period, including an increase in interest rates in the spring, tightening of mortgage lending rules for first time homebuyers and investors, and the lead up to the introduction of the HST in British Columbia and Ontario.

“Anecdotal evidence suggests that these factors may have prompted an increase in housing market activity in early 2010, as people sought to get out ahead of the changes,” Soper said. “Moving into the next six months, key economic indicators such as employment growth will continue to bolster consumer confidence and help to ensure a fundamentally healthy housing market. Home prices will remain flat or decline slightly in most cities, but will be more likely to hold their value or increase in energyproducing economies such as Alberta.”

Among the regions that posted year-over-year price increases in the second quarter, Canada’s two biggest markets posted some of the largest. Average prices in Vancouver were up 16.6 to 19.1 per cent while prices in Toronto rose by an average of
7.7 to 11.4 per cent. In recent years these markets, however, have tended to react much more aggressively to external stimulus and affordability is expected to erode after the sharp price increases posted in Q2. As a result, downward pressure on prices is expected for the remainder of the year.

Similarly, the country’s sharpest price increases occurred in St. John’s, NL, with prices up an average of 18.4 to 19.6 per cent.
A strong local economy driven by the oil sector combined with low inventory led to the robust increases, but eroding affordability and interest rates that are expected to rise will likely lead to more moderate price appreciation in the second half of the year.

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