Housing prices had stalled in Canada in the second half of 2010 with two consecutive quarters of downward movement, but they have since recovered with a 5.3% gain in the first quarter of this year followed by another 5.1% gain in the second quarter, according to Scotia Economics.
On a year-to-date basis, the national average resale price rose 7.6% to $364,953, up from $339,030 recorded for the year-ago period. Sales rose a more modest 1.2% to 452,435 transactions.
A combination of historically low borrowing costs and lower home prices in many markets, especially in Alberta, have injected more demand into the housing market, said Scotia economists in the Global Real Estate Trends report, released Tuesday.
Inflation-adjusted resale home prices rose 5% on a year-over-year basis in the second quarter of 2011, and data from July and August suggest that sales and home values have and should continue to remain steady in autumn.
The Scotia Economics report, unlike a similar one released by RBC, does not highlight growing concerns about a loss of affordability in the Vancouver housing market.
Earlier this month, RBC Senior Economist Robert Hogue said a sudden end to foreign investment in B.C. largest city could trigger a major decline in prices.
“Any marked slowdown in the inflow of foreign buyers – or in their eagerness to outbid local buyers – would remove quite possibly the biggest prop behind the price spike earlier this year,” he wrote in a report released Sept. 15. “Although the scenario now unfolding in the Vancouver area appears to be one of gradual decline in prices, very poor affordability raises the risk of a more significant correction.”
Of the 12 countries surveyed in Scotia Economics report, only France performed better, gaining between 5% and 8% in each of the past four quarters. China, considered one of the hottest international housing markets currently, was not included in the survey.
“France has so far bucked the broad deteriorating trend seen in many other European property markets,” said the report. “Consistently tight supply is contributing to the relatively strong performance. Nonetheless, slowing growth and more cautious consumer sentiment suggest the recent pace of price appreciation is unsustainable.”
Canada, however, seems to be on more stable ground.
“Ultra-low interest rates will continue to support affordability in the face of record high prices,” the report said. “Nonetheless, heightened economic uncertainty combined with recent signs of a loss of momentum in Canada’s jobs market could keep some potential buyers on the sidelines for the time being.”
The report authors predicted a modest slowing of sales transactions in Canada, along with “relatively flat” prices.
Aside from Canada and France, only Switzerland was among the nine countries surveyed in the second quarter of 2011 that saw price growth. Germany, Italy and Japan were included, but did not yet have data available. Australia, Ireland, Spain, Sweden, United Kingdom and the United States all saw price drops. The largest was in Ireland, which has seen prices drop in the double digits since 2009, when they dropped 17%. Ireland had had the largest price gains of those countries surveyed in 2006, when house prices rose 12%
The report noted that Canadian investment in the U.S. has been increasing, especially as the currency rate has become more favourable. Canadians purchased $19 billion worth of U.S. residential property in the 12 months to March 2011. Prices will remain affordable there for some time, predicted Scotiabank.
“A backlog of foreclosed properties is putting further downward pressure on prices,” said the report. “We continue to expect a protracted period of weakness in the U.S. housing market, as it could take several years to work through the sizeable oversupply of housing, including current ‘off-the-market’ units.”
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