Economists are predicting the current activity in housing to slow down. This means home prices will stabilize as the demand begings to balance with the availability.
See this attached story from the Toronto Sun.
Last year’s comeback for Canada’s housing market will carry through early 2010 but subdued activity is on the horizon as higher prices and interest rates make property less affordable, Scotia Economics says.
In a new Scotiabank report entitled “Global Real Estate Trends” senior economist Adrienne Warren said she expects strong housing demand and pricing to continue in the short-term as buyers rush to finalize transactions before tighter mortgage lending rules come into effect mid-April and before the introduction of the Harmonized Sales Tax in Ontario and B.C.
Professor John Andrew is the director of Queen’s University Executive Seminars on Corporate & Investment Real Estate. He said Warren’s assessment is spot-on.
“As seen in the past, these things do tend to spur on sales,” Andrew said.
But the spring rush will give way to more subdued activity in the second half as higher interest rates and home prices erode affordability.
“The incentive among builders to add substantial new housing stock should likewise fade as supply increases and prices cool,” Warren said, effectively putting a pin in speculation a real estate bubble is forming in Canada.
The inevitable introduction of higher interest rates combined with tighter lending practices precludes the risk of a significant bubble forming in any Canadian city, Andrew echoed.
Scotiabank forecasts the volume of home sale transactions on the Canadian Real Estate Association’s Multiple Listing Service (MLS) to come in at 510,000 in 2010, up 10% from last year but still a touch shy of the record set back in 2007.
Average prices are seen jumping another 8% to an all-time high of $345,000. And housing starts are pegged at 190,000 up from 149,000 in 2009.
The first half of 2010 will cap off a real estate decade fit for the record books, Scotiabank said. The last 10 years has seen the largest real price appreciation in at least 50 years and new home construction was at its strongest since the 1970s during the period.
“We expect 2010 will mark a transition year as the boom of the ‘aughts’ gives way to a sustained period of more subdued housing activity over the coming decade,” Warren said.
Benjamin Tal, a senior economist and real estate watcher at CIBC World Markets, agrees.
“We’ve come to the end of the real estate boom globally,” he said. The next decade will be defined by deleveraging as investors across the U.S., Canada and Europe become increasingly prudent with their money.
Real estate will no longer be the go-to method of making or saving money, Tal said.
“Prices, if they don’t decline, will at least stabilize,” Andrew said.
Canada leads the pack of developed countries in terms of real estate coming out of the recession with inflation-adjusted home prices in the fourth quarter up 19% year-over-year compared with a 12% rise in the third quarter.
“Year-ago comparisons are being amplified by the sharp drop in sales and prices at the end of 2008, but this nonetheless represents a remarkable turnaround in a relatively short period of time,” Warren said.
Australia maintained the second place position reporting a 12% annual increase in real price gains during the fourth quarter as firm domestic demand and stable job conditions bolstered housing activity Down Under.
Housing prices in many other major markets remained below year-ago levels. However in France, the U.S. and the U.K., the pace of decline slowed markedly, to 4.8%, 3.6% and 1.6% respectively, the bank said.
“In several other nations, including Spain and Ireland where economic conditions in general remain much weaker, we have yet to see any discernible improvement in residential housing activity.”