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Home prices remain sky high in June, but poised for a drop, economists say


By The Canadian Press
OTTAWA - Canadian home prices continued to soar above year-ago levels in June, but economist believe price hikes could soon ease, spelling relief for buyers in expensive markets like Toronto and Vancouver.
The Canadian Real Estate Association said Friday the national average price for Canadian home resales was $372,700 in June, up 8.7 per cent from the same month last year, but down 0.9 per cent from May.
Realtors sold 48,487 resale homes last month, 10.8 per cent more than in June 2010, when sales began to taper off from an earlier hot streak when buyers rushed to beat interest rate hikes. Last June, the Bank of Canada raised interest rates from emergency lows for the first time since the recession.
Last month's sales activity was also 2.6 per cent higher than in May, bucking a four-month trend of monthly declines.
"Canadian housing demand remains resilient, thanks to low interest rates, job growth, and home buyer confidence in the economy," CREA president Gary Morse said in a statement.
June's double-digit year-over-year sales increase was the fastest pace recorded since April 2010, said Bank of Montreal economist Robert Kavcic.
"However, the strong growth figure somewhat masks more moderate recent activity, as sales fell more than 16 per cent between April and June last year amid stricter mortgage rules, making for an easy comparison," he wrote in a research note.
Despite the year-over-year price hikes, seasonally-adjusted prices have now dipped for three straight months, suggesting the changes to mortgage rules that limited the maximum amortization period "might be having at least a modest impact on pricing," he said.
Some industry watchers have speculated that prices have now peaked and expect to see declines, especially when interest rates inevitably rise.
"Stricter mortgage rules and declining affordability appear to be taking at least some momentum out of prices, a trend that could continue if the Bank of Canada resumes its tightening campaign in the fall," Kavcic said.
Sonya Gulati, an economist at TD, said June's figures suggested a pickup in activity after a "particularly muted" over the past few months, but added that they could be a blip.
"We expect the mini reprieve to be fleeting and in turn, sales gains should be muted for the remainder of the year and into 2012," she said.
Gulati said she expects prices to decrease by 10 per cent over the next two years, accompanied by a 15 per cent decline in sales.
"The lag between sales and prices usually comes in between two to three quarters. In turn, we anticipate prices to temper early next year," she said.
Sales picked up in a majority of the country's cities, with two notable exception — the pricey and once overheated markets of Vancouver, down 1.7 per cent and Toronto, 0.4 per cent lower.
In Toronto, average seasonally adjusted home prices fell 1.1 per cent, but are still up nearly 10 per cent year-over-year. The market remains one of the most competitive in Canada as demand so far this year has far outweighed the number of listings, contributing to higher prices.
In Vancouver, average prices are about 23 per cent higher than they were last year, but the average is being skewed higher by a flurry of activity at the high end of the market. Sales in expensive West Vancouver and Richmond have eased since February, which helped to reduce the impact on average prices, CREA noted.
That area has recently been a hotbed of housing activity, and high end sales helped drive June average home prices in Greater Vancouver to $630,921.
However, the national figures in June showed less of an impact from the sales of high-priced homes in Vancouver, although that city continued to skew the national results, CREA said.
About 60 per cent of local housing markets in Canada were balanced in June — meaning the number of sales and new listings were about the same. However, new listings increased just marginally, by 1.8 per cent in June from May.
Calgary, Montreal, Ottawa, Hamilton, London, Ont., and Victoria all saw gains over May.
Nevertheless, national sales activity in the second quarter (April, May and June) was down 4.5 per cent compared with the first quarter of 2011.
CREA attributed the decline from the first quarter to new mortgage rules announced in January and implemented at the end of March and an increase in mortgage rates in April and May.
CREA's monthly report comes ahead of Tuesday's Bank of Canada announcement on its target overnight interest rates. The central bank is widely expected to keep the key rate unchanged at 1.0 per cent, where it has been since September .
Earlier in the year, economists had expected the Bank of Canada would begin raising its short-term rate to quell inflation. However, sentiment has changed amid signs that the U.S. economic growth has been less robust than expected.
In contrast with the United States, Canada's job growth has been stronger, its federal government is making more headway in dealing with budget deficits and its resource exports are relatively strong — putting home buyers in good shape.
"The Canadian housing sector remains on a solid footing," said Gregory Klump, CREA's chief economist.
"The rise in monthly home sales activity at the end of the second quarter, upbeat business sentiment and hiring intentions, and signs that the Bank of Canada is in no rush to raise interest rates bode well for home sales activity and prices going into the second half of 2011."
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