RBC: Canadian Resale Market to Moderate Not Crash, Home Prices Increase by 4.4% in 2011

Late last week the Royal Bank of Canada released a report by Senior Economist Robert Hogue stating that the housing market in Canada is in a period of transition to a more moderate and sustainable pace of growth.  According to Hogue "we expect resales in Canada to grow by 0.9% in 2011 and remain unchanged in 2012; and home prices to increase by 4.4% and 0.4% respectively.

He also notes that puzzlingly strong gains in the Vancouver market have led to a distorted view of the national average and that the statistics do not point to an excessively rapid rise in home prices.  The RBC's preferred home price measures, put together by Royal LePage, suggest that in reality pricing action remained under control for the first quarter of 2011, with gains ranging between 3.8% and 4.3% (depending on the housing category). Hogue simplifies it by saying, "In other words, statistics do not point to an excessively rapid rise in home prices overall in Canada at this stage".

For those of us here in Toronto (and other condo 'crazy' markets) wondering what is to be done with all of the new condo units being built and what effect they will have on the resale market  the report points out that condo construction is strong but not overly excessive and that the percentage of unoccupied units has remained below the long-term average since the early 1970s.  Hogue states that "Condominium units fill a need in the rental market because few purpose-built apartment buildings have been initiated in the past two decades in markets such as Toronto (where about 20% of the condo stock is rented).  To date, the flow of condominium units being direct to the rental pool has been absorbed by the market with rental vacancy rates remaining reasonably low".

 The report points out that although expected increases in interest rates will have a negative effect on the industry, sustained growth in the economy (stronger employment and family incomes) coupled with continued net-migration will keep "demographic fundamentals supportive".  So what does that mean?  Essentially RBC is predicting that these individual forces perfectly offset each other and the overall net effect will be nil thus the market will moderate leading to sustainable overall growth.

Download RBCHousingMarketUpdate


Speak Your Mind