Canadian home ownership costs are rising and affordability is eroding, while house prices are due for a correction in the coming year or two, a pair of reports by banks said on Tuesday.
"While the booming housing market is starting to come back to earth, the fact that prices are overvalued today does not necessarily mean that they will crash tomorrow," said Benjamin Tal, senior economist at Canadian Imperial Bank of Commerce.
He predicted that higher interest rates will lead to a modest decline in prices, probably between 5 and 10 percent, in the coming year or two.
INTEREST RATES, SUPPLY ON THE RISE
Rising interest rates will likely be a main factor affecting affordability. Market observers expect the Bank of Canada will soon raise rates, as soon as next week on June 1, as the economy has shown considerable strength.
Posted mortgage rates started to perk up about a month ago, but have since been pared back after government bond yields fell during the European debt crisis.
While affordability is expected to deteriorate throughout 2010 and 2011, Hogue said cost increases should be "limited as more balanced supply and demand conditions will take much of the steam out of the housing market."
CIBC's Tal said "stabilizing forces are already at play", pointing to rising new listings and a slower pace of climbing home prices.
Home resales slowed in April while new listings climbed, suggesting the country's real estate market could soon start to cool after a year of surging prices.
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