November 25, 2014 / 2:33 PM / 4 years ago

Reuters poll: Canada house price rises, new construction to slow

TORONTO (Reuters) - Canadian house price rises are expected to slow in 2015 after another strong year and homebuilding will gradually cool from elevated levels, but a property market crash still looms as a risk, according to a Reuters poll.

A construction worker swings his hammer at a new home development in Ottawa July 9, 2008. REUTERS/Chris Wattie

The survey of 23 forecasters found that while most said Canada’s house prices were higher than they should be, medians suggest they will still rise 5.2 percent this year before higher mortgage rates and unaffordability slows the market.

Despite predictions that price appreciation and home building will slow in 2015, nine of 23 respondents said the risk of a major property market crash has risen in the past year. Another nine said the risk had stayed the same, while five said the risk had fallen.

“As long as the economy continues to expand, an outright crash (like) what happened in the United States ... is hard to come by,” said David Doyle, an economist at Macquarie Capital Markets, adding that he does not see much risk of a recession at least in the next 12 to 24 months.

The poll forecast Canadian house prices to rise 5.2 percent in 2014, and 2.0 percent in both 2015 and 2016. That compares to an August consensus of a 5.0 percent rise in 2014 and a 2.0 percent rise in 2015 and 2016.

Canadian house prices have risen 27.2 percent in the last five years, according to the Teranet National Bank House Price Index.

Poll respondents expect housing starts to slow from 190,000 in the fourth quarter of 2014 to 181,000 in the fourth quarter of 2015. While homebuilding has slowed from its cyclical peak in 2012, the federal housing agency said on Monday there is some risk of overbuilding in markets like Montreal and Toronto

The survey also showed 10 of 22 respondents believe Canada’s high ratio of household debt-to-income could pose a risk to housing demand. That ratio rose to nearly 164 percent in the second quarter, up from 163.1 percent in the first.

“(The) housing market has remained positive because of lower mortgage rates and that will only last until part way next year. As the rates increases, the pressure on housing will increase and demand for homes will decrease, causing prices to start to fall,” said Sadiq Adatia, chief investment officer at Sun Life Global Investments.

The Bank of Canada will probably raise rates in the third quarter of 2015, a Reuters poll showed last month.

But, predictions for a hike could get pushed further out when the latest survey is published on Wednesday, as doubts rise over whether central banks in Britain and the U.S. ought to raise rates while those in Japan and the euro zone loosen policy. [CA/POLL]

(For other stories from the poll see

Additional reporting and polling by Anu Bararia; Editing by Ross Finley and Chizu Nomiyama

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