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Record housing prices forecast


Blog by The Schacter Team | February 9th, 2010


Moves to tighten mortgage rules and curb household debt possible as market picks up steam

Canadian real-estate sales and prices are poised to set records this year, according to a new forecast which is bound to reignite calls in some quarters for tighter lending rules.

The Canadian Real Estate Association, which represents 100 boards across the country, said Monday it expects existing home sales to reach 527,300, a 13.3-per-cent increase from a year ago and a 1.2-per-cent increase from the record high set in 2007.

The new-home market appears to be picking up steam, too. Canada Mortgage and Housing Corp. said there were 186,300 starts in January on a seasonally adjusted annualized basis, the highest level of new construction since October 2008.

Bank of Canada governor Mark Carney has warned about rising levels of household debt, which are nearing record levels. Finance Minister Jim Flaherty has suggested he's prepared to tighten mortgage requirements and continues to monitor the market.

"One of the legitimate concerns of the finance minister might be that, if you make qualifying for mortgage default insurance prematurely restrictive, it will quell housing activity, even as erosion in affordability continues," said Gregory Klump, chief economist with CREA.

There have been some rumblings that the government is considering new rules that would require buyers who need mortgage insurance to have at least 10 per cent down and amortize their mortgage over just 25 years instead of the current 35 years. Anybody with less than a 20-per-cent downpayment must get mortgage insurance if they are borrowing from a financial institution governed by the Bank Act.

Klump's group believes the market is going to correct on its own in the second half of 2010. CREA has called for sales to drop by 7.1 per cent in 2011.

The group says that, while average prices will rise by 5.4 per cent in 2010, to an all-time high of $337,500, they will drop by 1.5 per cent in 2011.

That view of the housing market is not out of step with some economists who think that, once interest rates rise and inventory levels increase, price increases will shrink. Year-over-year price increases in some markets such as Toronto have been around 20 per cent for the past few months.

Part of that urgency in the housing sector is being driven by the July 1introduction of the harmonized sales tax in Ontario and British Columbia. The tax would apply to real-estate services and could increase the cost of buying a home by a few thousand dollars.

gmarr@nationalpost.com