Wednesday, March 2, 2011

House prices to rise modestly: BNS

A modest rise in Canadian home prices is likely this year as the market is tilting mildly in favor of sellers, Bank of Nova Scotia said on Tuesday.

Market watchers should expect a 2% decline in sales of existing homes in 2011, and a 2% uptick in prices, Adrienne Warren, Scotiabank's senior economist, said at a bank-sponsored forum on the Canadian real estate market's outlook and trends.

For 2012, a lack of pent-up demand and further tightening of mortgage rules, announced in mid-January, will probably dampen sales further. As well, Canadian interest rates are expected to rise by next year and increase mortgage carrying costs, and that should also pressure the market, she said.

Looking at the long-term trend in house prices relative to income, Warren estimates the current average home is about 10% overvalued. But she is quick to point out that this is "fairly typical" toward the end of an expansionary phase.

She expects a soft-landing scenario will likely play out, a view that is held by several other forecasters. The Canadian Real Estate Association said last month it sees national sales activity falling just 1.6% this year from 2010, less than originally forecast, while prices may rise 1.3%.

Data shows the average price of a home in Canada was $339,030 in 2010, while 473,772 units changed hands.

Phil Soper, president and chief executive of Brookfield Real Estate Services, said he expects sales in Canada's housing market will be "front-loaded" to the first half of the year as homebuyers get into market ahead of an expected rise in interest rates.

The Bank of Canada left its key interest rate unchanged at 1% on Tuesday and gave no signal it plans to raise rates soon, pushing market players to trim expectations of a first-half rate increase.