Canadian home prices to rise modestly: Scotiabank

Tue Mar 1, 2011 3:27pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Ka Yan Ng

TORONTO (Reuters) - A modest rise in Canadian home prices is likely this year as the market is tilting mildly in favor of sellers, Bank of Nova Scotia said on Tuesday.

Market watchers should expect a 2 percent decline in sales of existing homes in 2011, and a 2 percent uptick in prices, Adrienne Warren, Scotiabank's senior economist, said at a bank-sponsored forum on the Canadian real estate market's outlook and trends.

For 2012, a lack of pent-up demand and further tightening of mortgage rules, announced in mid-January, will probably dampen sales further. As well, Canadian interest rates are expected to rise by next year and increase mortgage carrying costs, and that should also pressure the market, she said.

Looking at the long-term trend in house prices relative to income, Warren estimates the current average home is about 10 percent overvalued. But she is quick to point out that this is "fairly typical" toward the end of an expansionary phase.

"It is not particularly surprising that house prices have overshot in recent years, given persistently tight resale housing supply and unprecedented low interest rates," she said.

"It is widely expected that the housing boom of the past decade will be followed by a period of softness."

She expects a soft-landing scenario will likely play out, a view that is held by several other forecasters. The Canadian Real Estate Association said last month it sees national sales activity falling just 1.6 percent this year from 2010, less than originally forecast, while prices may rise 1.3 percent.

Data shows the average price of a home in Canada was C$339,030 ($348,223) in 2010, while 473,772 units changed hands.   Continued...