Housing market seen flat over next 2 years

Wed Mar 7, 2012 3:27pm EST
 
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TORONTO (Reuters) - Canada's housing market will cool off over the next 24 months with home sales and prices remaining flat near 2011 levels, but it will avoid the sharp plunge seen in the United States during the recession, Bank of Nova Scotia said on Wednesday.

A slowdown in global growth over the past year has sapped some of the strength from Canada's formerly hot real estate sector, particularly in major urban centers such as Vancouver and Toronto.

"Currently, it looks like an environment where home prices will likely be relatively flat on an average basis," said Scotiabank senior economist and real estate specialist Adrienne Warren.

Average home prices rose 4.3 percent in 2011, but cooled considerably in the final quarter, rising just 1.1 percent from the previous year, according to data compiled by the Canadian Real Estate Association (CREA).

Warren said homes are likely overvalued by as much as 15 percent due to an extended period of rising prices and low mortgage rates, but she didn't foresee a U.S.-style subprime collapse.

The national average home price in 2011 was C$363,346 ($363,346) according to CREA data.

"I don't think there's a big risk of a big price correction," said Warren, adding the main triggers would be a jump in the unemployment rate and multiple interest rate hikes, neither of which is expected by Scotiabank economists over the next 12 months.

The Bank of Canada has kept interest rates at record lows since the financial crisis began in 2008 and is widely expected to keep is main policy rate at its current 1 percent target through 2013.

Warren said housing starts and existing home sales would hold close to 2011 levels. She predicted starts would dip to 185,000, down slightly from the 194,000 in 2011, according to CREA data. Sales should hold near last year's total of 456,749 units.   Continued...