Will Canada’s housing boom grind to a halt?

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% this year before stalling next year with a negligible 0.5% gain, according to median results of the poll, which was conducted last week.

House prices have increased 37% 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% 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% this year after rising almost 10% in 2011. But that will quickly fizzle into a decline of 0.2% 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% this year and 2.5% 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.

By early 2010, sales volumes and prices were rising by double digits on an annual basis. Figures from one industry group showed that since March 2009, the nadir of the financial crisis, Canada home prices have risen by nearly a third.

Source: Cameron French, Reuters

Leave a Reply

Real Estate Blogs