Housing market will be stable next two years: RBC
A stronger economy will offset the effects of higher mortgage rates and
keep Canadian house prices stable over the next two years, according to
the Royal Bank of Canada.
In a market update that has the bank forecasting price gains of 0.5 per
cent in 2011 and 1.3 per cent in 2012, economist Robert Hogue said that
after two years of “gyrating wildly,” the Going forward, we see nearly
perfectly offsetting forces driving Canada’s housing market,” he said.
“On the upside, the economic recovery will gather strength in 2011,
continuing to boost employment and family incomes. On the downside,
interest rates are expected to rise.”
The Bank of Canada will likely raise interest rates by 100 basis points
this year and another 150 basis points in 2012, he said, making mortgage
payments more expensive for the majority of homeowners. But real gross
domestic product is expected to increase to 3.2 per cent in 2011 from
2.9 per cent in 2010.
“The net effect of these forces is expected to be close to nil, thereby
leaving resale activity largely flat,” he said.
There have been a flurry of forecasts issued in the last week,  as the
market starts the year stronger than expected
Canadian housing market is likely to be a much less interesting place
for the next several years. Capital Economics issued a cautious report
that suggested higher interest rates could drive prices down as much as
25 per cent over the next three years, while the Canadian Real Estate
Association raised its sales forecast for the next two years as it
suggested that a stronger economic recovery and continued low interest
rates would keep the market balanced.
“Even though mortgage rates are expected to rise later this year, they
will still be within short reach of current levels and remain supportive
for housing market activity,” CREA chief economist Gregory Klump said.
“Strengthening economic fundamentals will keep the housing market in
balance, which will keep prices stable.”
Capital Economics economist David Madani said too many optimistic
forecasts are based on too short a time frame to be useful, because many
mortgages won’t reset until rates rise much higher than they are today.
“Let’s balance this discussion a bit and think longer term,” he said in
a recent interview. “As far as housing prices are concerned, we think
they’re overvalued and we don’t see income growth closing that gap.”