Canadian Real Estate Expected To See Less Activity In 2011

Sluggish sales in British Columbia, along with the prospect of rising interest rates, have somewhat tarnished the outlook for Canada’s real estate market. Overall, near record activity is …

Sluggish sales in British Columbia, along with the prospect of rising interest rates, have somewhat tarnished the outlook for Canada’s real estate market. Overall, near record activity is expected for Canadian property in 2010, followed by a slowdown and stronger prices in most markets for 2011. See the following article from Property Wire for more on this.

The Canadian Real Estate Association has lowered its forecast for residential property sales after a weaker than expected start to the year in British Columbia and recent developments that pulled forward the timing as to when sales are expected to ease in other provinces.

CREA’s previous national forecast was heavily influenced by British Columbia and Ontario forecast trends, and this remains the case in the revised forecast. While sales activity is unfolding as expected in Ontario, the decline in affordability in British Columbia impacted sales in the province during the first quarter.

On top of this changes to mortgage regulations announced in February are expected to marginally affect activity. The changes prompted some homebuyers to finance their home purchase before the new regulations took effect in April, which pulled forward a number of sales that would have otherwise taken place at a later date, the association said.

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April also saw the Bank of Canada drop its conditional commitment to keep interest rates on hold until at least July, opening the door to an interest rate hike before then and then on June 1st, the Bank announced its decision to raise its trendsetting overnight lending rate by 25 basis points to 0.5% and indicating that it expects the rate of growth to slow for consumer spending.

‘Interest rates are expected to rise slowly and at a measured pace during a new era of government spending restraint, so home financing will remain within reach for many homebuyers,’ said CREA President Georges Pahud.

CREA had previously forecasted sales would remain at elevated levels through the first half of 2010 before easing in the second half of the year and over 2011. While the forecasted trend for activity has not changed, it has been pulled forward, with the fourth quarter of 2009 marking the peak of national activity. This has had the effect of lowering the forecast for national activity over the rest of the year and in 2011.

National activity is forecast to reach 490,600 units in 2010, up 5.5% from 2009 and the second highest annual level on record. Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity. Annual activity in Alberta was also revised downward due to weaker than expected activity in the first quarter. Ontario is still expected to see a record number of sales in 2010, but by a smaller margin than previously forecast.

CREA also said that interest rate increases will contribute to weaker national sales activity in 2011. The national average property price is forecast to climb 1.6% in 2010, reaching a record $325,400, with average price gains forecast in all provinces.

All provinces are forecast to post modest average price gains in 2011, except British Columbia and Ontario. The forecast decline in activity is sharpest in these two provinces, with higher-priced transactions weakening most. Average prices are forecast to sag in these two provinces in the second half of 2010 before stabilizing next year.

‘With interest rates soon expected to rise, Canada is widely believed to be entering a typical demand-driven downturn due to recent prices increases and rising interest rates. A downward trend in national sales activity combined with an increase in listings will result in a more balanced market,’ said CREA chief economist Gregory Klump.

‘In keeping with the return of a balanced housing market and typical demand-driven housing market cycle dynamics, prices will remain stable. Canada’s solid mortgage market trends, conservative lending practices, and prudent borrowing by homebuyers means that Canada will avoid the massive realignment in housing supply and demand being experienced in the United States. Accordingly, Canada will avoid a U.S.-style housing price correction,’ he added.

This article has been republished from Property Wire. You can also view this article at
Property Wire, an international real estate news site.

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