January 13, 2010 - Canada's residential real estate market is forecast to remain unusually strong through the first half of 2010 as economic conditions across the country improve and the stimulus impact of low interest rates continues to stoke demand, says Royal LePage. As confidence in the recovery builds in early 2010, increases in average house price levels and overall market activity are expected to continue.
The gradual erosion of affordability driven by higher house prices and the expected late-year modest upward movement of interest rates, together with an improvement in listings as confidence improves, are expected to bring the market back into balance in the second half of the year, when home price increases may moderate.
"The Canadian real estate market enters 2010 with considerable momentum from a unusually strong finish to the previous year," says Phil Soper, president and chief executive, Royal LePage Real Estate Services.
"The stimulus effect of low borrowing costs has contributed to a sharp rise in demand that has driven activity levels to new highs. This demand, coupled with a typical seasonal undersupply of homes for sale, should cause home prices to continue to appreciate significantly during the early months of the year. Improving supply as the year unfolds and easing demand as the cost of home ownership rises should moderate home price increases in the second half of 2010."
In contrast to the difficult months during the worst of the recession, house prices appreciated during the later part of 2009, with fourth quarter price averages surpassing averages from the fourth quarter 2008. The average price of detached bungalows rose to $315,055 (up 6.0 per cent), the price of standard two-storey homes rose to $353,026 (up 5.2 per cent), and the price of a standard condominium rose to $205,756 (up 6.4 per cent).
Regions that saw the strongest declines during the recession are now showing marked gains. Those regions include Toronto, as well as the Lower Mainland in B.C. Vancouver in particular experienced a robust quarter, with home prices rising across all housing types surveyed.
"No other sector of the economy has been as highly affected by economic stimulus as housing," says Soper. "As consumer confidence has improved, Canadians have shown a lingering reluctance to acquire depreciating assets such as consumer durables, but have embraced the opportunity to invest in real property."
Soper adds, "Our forecast is built upon an expectation that interest rates will ease upward before the year's end, which should have a dampening effect on demand, allowing it to come into balance with the supply of resale homes on the market. Further, we expect to see an increasing number of homes listed for sale as the year progresses - as Canadians regain confidence in the economy, they should be more willing to enter into a large financial transaction such as the sale of a home."