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With rise in rates, homes market set to cool down: Study

Canada's hot housing market is set to cool gradually in the next several years as interest rates rise, supply and demand come into better balance and the population ages, a new study suggests.

A recent Bank of Nova Scotia report came days after the Canadian Real Estate Association said home prices nationally had reached an all-time high, driven largely by a buying frenzy west of Ontario.

Scotiabank economist Adrienne Warren said the downturn in the market will probably be gradual. "Certainly not a bust," Warren said. "Just a more moderate base of activity."

Unlike in the united States, the fundamentals in Canada are still healthy, Warren said. Average home prices in Canada have reached slightly more than $300,000, about double the 1998 average price.

The report said growth has now probably peaked, even though sales could still set records in the near term. "With interest rates that already have begun to drift up (and) the risk they could drift up higher for the remainder of the year, we will see things cool off," Warren said.

Nationally, prices are likely to continue rising over the next several years, but at a pace well below the 10 percent annual increases seen in recent years, the report indicates. Over the longer term, the analysis suggests, a slowdown in population growth along with an aging population will tend to soften the market.

Warren's study notes that the key homebuying demographic - people between 25 and 44 years old - is projected to increase just two percent between 2006 and 2016, with all this growth at the young end of the cohort. This should support moderate demand for entry-level homes and condos, but getting into the market is becoming increasingly difficult, the report finds. "It is, certainly for first-time homebuyers, becoming a pricier market," Warren said.

"The people who haven't gotten into the market yet - given that we've seen essentially double-digit price increases for a number of years in a lot of the major markets in Canada - at this point, it will be a little bit more difficult to get in," Warren added.


Posted on Tuesday, June 12, 2007 at 04:05PM by Registered CommenterElaine in | CommentsPost a Comment

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