Home resales rise across Canada, but a change is coming

The pace of home purchases has worried some landlords afraid that good tenants will convert too soon to good homeowners, but a new report is suggesting change is coming that may slow these types of conversions.

RBC Economics Research’s Housing Trends and Affordability report, published on Wednesday, found that home resales across Canada have increased for the eighth time in the past nine months to October.

This primarily reflects robust activity in Calgary, Toronto and Vancouver, and contrasts with balanced or soft conditions elsewhere in the country.

The report said that this split resale picture shows up in price trends as well – prices in Calgary, Toronto and Vancouver have been appreciating much faster than in other local markets.

However, economists warn that a combination of gradually increasing interest rates and higher prices will likely reverse the improvement of housing affordability that took place over the past year, weighing more heavily on homebuyer demand.

“Once again, it’s a story of interest rates,” says Robert Hogue, senior economist at RBC. “In our view, we are expecting a rise in interest rates in 2015. We’re expecting the first increase about the middle of the year. However, longer-term interest rates, through bond yields, will start rising before that.

“We’re expecting this to put upward pressure on mortgage rates in the coming year, and this will have a dampening effect on home resale activity in Canada.

“But it wouldn’t necessarily be a trigger for a significant downturn in Canada. We will see some healthy moderation in some of the markets. And this will, in our view, translate into home price increases, but at a more moderate level.”

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