Home prices in Vancouver rose about 10 per cent in the last year, with two-storey houses approaching $1.1 million — about three times the national average, says a new report by real-estate brokerage Royal LePage.
Despite the soaring values in Canada's most expensive market, prices nationally are expected to stabilize or only creep higher this year amid "tepid" improvements in employment, LePage said in a report Tuesday.
Phil Soper, president and chief executive of Royal LePage Real Estate Services, said that in most markets lower, single-digit percentage increases are more likely for the balance of the year.
The more modest increases in most markets predicted for 2011 comes after bigger price jumps in recent years fuelled by low mortgage rates and solid consumer confidence.
"We expect house prices will continue to creep up, but most of the excess demand created by the initial drop in interest rates has been satisfied and affordability continues to erode slowly," Soper said.
"While low interest rates continue to drive demand, the tepid pace at which employment levels are improving is tempering the rate of home price appreciation in many Canadian cities."
Canada created about 300,000 jobs in the last year as the economy recovered from recession, but the jobless rate has remained high — at 7.7 per cent — and growth could be squeezed by rising interest rates and weakness in the United States.
In Vancouver though, a limited supply of homes for sale, low interest rates and demand from buyers from China continued to drive up prices with the cost of a two-storey house up 9.7 per cent from a year ago at an average cost of nearly $1.1 million in the first quarter.
That compared with a Canadian national average price or $379,388 for a standard two-storey home, up 3.5 per cent.
The national price for detached bungalows rose 4.3 per cent year-over-year to $341,355, while standard condominiums rose four per cent to $237,919.
The cost of a detached bungalow in Vancouver jumped 8.2 per cent to an average of $980,000, while the average condo increased 7.8 per cent $507,250.
CIBC deputy chief economist Benjamin Tal said the influx of money from China into the Vancouver real estate market — especially the affluent west side — makes it unlike any other in Canada.
"The China story is more sustainable than any other story that I know, so it is possible that this trend will continue. The fact that it is foreign money isn't a negative," Tal said.
More generally, Tal expects a strong spring as homebuyers take advantage of low interest rates before they head higher later this year, but what happens after that is uncertain.
"Every increase in house prices at this point, adds to the probability of some sort of adjustment in the market," Tal said.
RBC senior economist Robert Hogue said the two unknowns for the real estate market are interest rates and the effects of new mortgage rules.
"Buyers out there are being told by economists and others that interest rates are going to rise, but so far it hasn't been quite as much as we thought it would be," Hogue said.
Changes also came into effect in March that reduced the maximum amortization period to 30 years from 35 for insured mortgages and limited how much money Canadians can borrow using their homes.
It was the third time mortgage rules have been tightened in the past three years.
The Royal LePage report found a two-storey house in Toronto increased by 2.5 per cent to $589,929 and a similar house in Halifax increased 7.1 per cent to $298,000.
That compared with a drop of 2.1 per cent in Calgary for a similar house to $423,122.
Canada's big banks raised their posted rates for fixed rate mortgages last week. The posted rate at most Canadian banks for five-year closed mortgages — one of the most popular types of loans for Canadian home owners — is 5.69 per cent.
The Bank of Canada left its overnight rate unchanged Tuesday at one per cent, but the central bank is expected to raise the rate — which influences variable rate mortgages — later this year.
Meanwhile, Statistics Canada said its new housing price index rose 0.4 per cent in February, following a 0.2 per cent increase in January.
The highest month-to-month increase, 1.8 per cent, was recorded in Regina, while Toronto, Oshawa, Ont., and Edmonton were also top contributors to the jump.
On a year-over-year basis, the index was 2.1 per cent higher in February.
By Craig Wong, The Canadian Press