Canadian real estate market to resemble 2010: report
TORONTO - The Canadian real estate market will follow a similar pattern this year as that seen in 2010 as buyers pull sales forward into the early months in anticipation of higher interest rates, according to a report from one of Canada's largest real estate firms.
The aftershocks of the recession, including a lingering low interest rate environment, will continue to influence the Canadian real estate market in 2011 -- a year that will be stronger than expected, said the report released Thursday by Royal LePage.
Royal LePage predicts that average home prices will rise three per cent to $348,600 in 2011, driven largely by a rush to buy in the first half of the year in advance of anticipated interest and mortgage rate hikes in the second half.
"Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels," said Phil Soper, president of Royal LePage.
"2011 is expected to unfold much like 2010, when close to 60 per cent of sales volume occurred in the first half of the year in anticipation of interest rate increases that never materialized."
However, the number of transactions will be slightly lower than last year and activity will be modestly closer to the norm because the pull forward phenomenon last year was exacerbated by a tightening of mortgage qualification rules and the introduction of the HST in Ontario and British Columbia in the middle of the year.
Soper said the extension of low mortgage rates will be an unexpected boon to the market this year.
"Like many Canadians, we anticipated an end to the ultra-low interest rate era before year-end 2010," he said.
"Paradoxically, global economic weakness, particularly in the United States, allowed policy-makers and financial institutions to keep borrowing costs low, resulting in a stronger Canadian housing market and a better than forecast fourth quarter."
Average house prices rose between 3.9 per cent and 4.6 per cent in the fourth quarter of 2010, while price appreciation is expected to continue a moderate and steady climb throughout the current year.
The report contrasts with some recent predictions by economists that prices should remain flat or decline over the next year.
The Canadian Real Estate Association has predicted prices will fall by 1.3 per cent to a national average of $326,000, this year, tied to weakness in British Columbia and Ontario -- the hottest real estate markets of 2010. It has also forecasted a nine per cent decline in sales.
CREA has yet to release year-end data for 2010, but preliminary reports from two of the biggest markets, Toronto and Vancouver, released this week indicate 2010 declined as expected.
Sales were down by one per cent compared with 2009 in Toronto, while the average home selling price was $431,463, up nine per cent from 2009.
In Vancouver, sales declined 14.2 per cent from 2009, and were 10.3 per cent below the 10-year average for sales in the region. The average selling price in B.C.'s largest city was up 2.7 per cent at $577,808.
Canada's real estate market has been on a rebound over much of the past year after sales dried up in late 2008 and hit a multi-year low in January 2009.
The housing market's sudden plunge was sparked by a credit crunch that developed in the U.S. housing and lending industries, and gradually spread across the globe, causing a worldwide recession in the late summer and early fall of 2009.
The commercial real estate market experienced a similar plunge as investors lost confidence in the sector.
However, the commercial market, which includes office and retail spaces, had a stronger than expected year in 2010 and that momentum is projected to strengthen throughout 2011, according to a report released Thursday by CB Richard Ellis Ltd.
Some market observers had predicted a glut of vacancies in Canada's major business centres, but that didn't happen, said John O`Bryan, vice-chairman of CB Richard Ellis Canada.
We`ve had good news over the past twelve months with respect to interest rates, housing trends and employment gains, with many companies announcing plans for expansion, he wrote in the report.
"2011 may well be another good, stable year but should be viewed with cautious optimism in light of the concentration in employment growth on part-time jobs rather than the full-time positions that indicate confidence in long-term, sustainable growth."