Canada home prices seen rising, but debt levels a worry-Reuters poll

Tue Jun 2, 2015 10:23am EDT
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By Deepti Govind and Aaradhana Ramesh

(Reuters) - Canadian home prices will rise modestly this year, giving some additional support to an economy that remains sensitive to housing market activity, according to a Reuters poll that also found analysts concerned about household debt levels.

A long period of record-low borrowing costs has encouraged investment in the property market and helped Canada's economy brave the worst of the global financial crisis, which brought a booming U.S. housing market to its knees.

But as average home prices doubled over the past decade, borrowers piled on debt, lifting the household debt-to-income ratio to a record high of 163.3 percent.

Canadian home prices are expected to rise 3.4 percent this year, up sharply from a prediction of 1.8 percent in a February survey, but slower compared with the rise over the past six years, the poll showed.

Expectations for 2016 and 2017 were also revised higher to 1.3 and 1.7 percent, from 1.0 and 1.4 percent respectively.

Some analysts fear the Canadian market is overinflated and headed for a sharp correction, especially as a slump in energy prices has hurt home sales in oil-producing provinces like Alberta.

"The stronger growth numbers seen toward the end of 2014 were in part tied to stronger-than-expected trends in residential investment. However, we are not forecasting housing to be a major growth contributor in 2015," said Nick Exharos, economist at CIBC World Markets.

Canada's economy suffered its biggest contraction in nearly six years in the first quarter, after growing 2.2 percent in the previous one, with business investment and exports falling as the country grappled with the steep decline in oil prices.   Continued...

Construction workers build a new house in Calgary, Alberta, April 7, 2015. House prices have fallen in Calgary after the price of oil plummeted late last year according to local media reports. REUTERS/Todd Korol