Canada home price boom to grind to a halt

Tue Jun 19, 2012 12:25pm EDT
 
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By Cameron French

TORONTO (Reuters) - Canada's housing boom will grind to a halt next year, stopped by price declines in the condominium-saturated markets of Toronto and Vancouver, according to a Reuters poll, raising the risk of a broader economic slowdown.

On a national basis, Canadian house prices are expected to rise 2.0 percent this year before stalling next year with a negligible 0.5 percent gain, according to median results of the poll, which was conducted last week.

House prices have increased 37 percent since their trough in January 2009, The Canadian Real Estate Association index showed. All 15 respondents in the poll said the market was expensive, by varying degrees.

"Home prices are overvalued by slightly under 10 percent nationwide (and) most of the overvaluation is concentrated in Toronto and Vancouver," said Mark Hopkins of Moody's Analytics, citing a common concern about the two hottest urban markets.

House prices in Toronto, Canada's largest city and financial capital, are expected to rise 6.6 percent this year after rising almost 10 percent in 2011. But that will quickly fizzle into a decline of 0.2 percent next year, the first fall since 2008.

In Vancouver, the country's most expensive market and until recently clocking the fastest annual price rises, they are expected to fall 1.6 percent this year and 2.5 percent in 2013.

Canada's housing market avoided the U.S. sub-prime boom and bust that triggered the global financial crisis, in large part because its banks are more closely regulated and more conservative, requiring higher deposits for mortgage lending.

While property prices tumbled in the U.S., Ireland, Spain, and to a lesser extent, Britain, record low borrowing costs that followed the recession spurred another wave of home buying and property market speculation in Canada.   Continued...

 
A builder works on the the roof of a new home under construction in the Montreal suburb of Brossard, August 10, 2010. REUTERS/Shaun Best