Royal LePage forecasts modest house price gains for remainder of 2013, as Canadian housing emerges from current market cycle
TORONTO, July 9, 2013 – The average price of a home in Canada increased between 1.2 per cent and 2.7 per cent in the second quarter of 2013, according to the Royal LePage House Price Survey and Market Survey Forecast, released today.
According to the survey, markets across the country continue to post gains. In the second quarter, standard two-storey homes and detached bungalows both showed a year-over-year average price increase of 2.7 per cent to $419,614 and $386,547, respectively. Average prices for standard condominiums showed a more modest increase during the same period, rising 1.2 per cent to $248,750. Royal LePage forecasts that house prices will see modest gains throughout the remainder of 2013, projecting a 3.0 per cent increase for the full year when compared to 2012.
Dialogue concerning the direction of Canada’s housing market has remained front and centre in recent months. Changes to Canada’s mortgage lending rules in mid-2012 coupled with concerns about consumer debt levels, housing affordability in cities like Toronto and Vancouver and continued international economic uncertainty have prompted a number of analysts to forecast large downward price adjustments.
“As we have stated consistently since the current market downturn began late in the second quarter of 2012, this is a normal cyclical correction which brings fewer home sales and softer prices. Those hoping their predictions of a bursting bubble and cataclysmic drops in home values will come true are out of luck again,” said Phil Soper, president and chief executive of Royal LePage. “Price appreciation in most markets across the country has been well below the long-term average for Canada and will remain so through to the end of the year. We expect to see the number of homes trading hands to begin to rise slightly on a year-over-year basis in the second half of 2013, with price softness continuing until mid-2014, at which point we’ll see an emergence from the current cycle.”
Recent signals from major financial institutions in the United States and Canada also point to a turn in the tide. In recent weeks, two of Canada’s largest home-loan lenders, Royal Bank of Canada and TD Bank Group, raised their mortgage rates. At the same time, the U.S. Federal Reserve recently hinted that it may start winding up monetary stimulus later this year, should economic improvements continue.
“With the economy on both sides of the border performing better in recent months, a move off the record-low interest rates that we’ve experienced over the past few years is likely on the horizon,” explained Soper. “Paradoxically, we expect the first increases in interest rates to be constructive for the housing market. Rising rates would be driven by a strengthening economy, reduced unemployment and improving consumer confidence. Much of the dampening effect that would come with a transition towards higher rates has already been ‘priced in’ to both consumer attitudes and financial institutions’ current lending policies.”
As of late, the condominium sector has moved to the forefront of discussions concerning the health of Canada’s real estate market with fears of oversupply in major centres like Toronto. Yet, condominium prices remained flat or posted year-over-year gains in nearly all Canadian cities in the second quarter, with a couple of exceptions in British Columbia. While condominium prices in Vancouver saw a 3.3 per cent decrease when compared to the same period in 2012, signs of an early recovery are evident across the Lower Mainland of British Columbia.
“We believe condominiums will be a housing class of increasing importance in the Canada of the future,” said Soper. “In the short-term we anticipate some market uncertainty and moderate price adjustments, particularly in Toronto which is working through a supply spike, however, the medium and long-term prognosis remains very positive. Demographic and city planning trends, in conjunction with shifting consumer preferences, remain supportive of this housing category.”
Regional Market Summaries
Strong construction sales contributed to overall price increases in the Halifax housing market. Standard condominiums made the greatest gains year-over-year, with a 5.1 per cent lift to $215,950. Standard two-storey home prices were close behind, rising by 5.0, while detached bungalow prices remained relatively flat. Average Halifax house prices are forecast to increase by 1.6 per cent by the end of 2013. Inventory shortages in some market segments were a factor in the significant growth of St. John’s housing prices. Standard condominiums experienced the greatest increase, rising by 7.5 per cent to $309,333.
Montreal housing prices saw more moderate growth, partially attributed to an increase in the number of first-time buyers in the market. The price of detached bungalows rose by 2.7 per cent year-over-year, while standard two-storey homes increased by 3.3 per cent. Standard condominium prices were relatively flat year-over-year, rising only 1.6 per cent to $240,306. Average housing prices in Montreal are forecast to grow by 1.7 per cent by the end of 2013. Housing prices in Ottawa remained relatively flat year-over-year, with higher inventories leading to more options for buyers in the market. Average home prices in this region are expected to remain steady over the balance of 2013, with a projected increase of 1.2 per cent year-over-year.
Low levels of inventory combined with low interest rates contributed to modest price increases in the Toronto housing market. Detached bungalow prices rose by 3.1 per cent year-over-year to $577,495 and standard two-storey homes saw a gain of 2.2 per cent to $683,241. Standard condominium prices remained flat, increasing by 0.7 per cent to $366,189. Toronto home prices are expected to grow by 2.5 per cent year-over-year by the end of 2013, while unit sales are projected to decrease by 4.5 per cent.
The Winnipeg housing market witnessed significant appreciation in prices, with multiple offer scenarios and a strong demand for condominiums driving the increases. While detached bungalow prices remained relatively flat, rising by 0.6 per cent to $305,010, standard two-storey home prices grew by 7.1 per cent to $344,598, and standard condominiums increased by 4.4 per cent to $198,431. The average price of a home in Winnipeg is forecast to rise by 3.9 per cent year over year by the end of 2013.
New construction kept condominium prices relatively flat in Regina at a 1.1 year-over-year decrease, but strong demand and critically low inventories of detached bungalows and standard two-storey homes drove price increases in these housing types of 3.0 per cent and 4.5 per cent, respectively. Average home prices in Regina are projected to continue to rise through the end of 2013, gaining 5.8 per cent year-over-year.
Low inventory combined with high demand led to continued price appreciation in the Calgary housing market. Detached bungalows rose by 5.9 per cent year-over-year and standard two-storey homes made gains of 6.7 per cent, while the average price of a standard condominium increased by 6.0. Calgary home prices are forecast to rise by 6.5 per cent through 2013, and unit sales are also predicted to grow by 3.3 per cent.
In the Edmonton market, detached bungalow prices increased by 5.9 per cent year-over-year to $347,344 and standard two-storey homes rose by 2.2 per cent to $361,636. Standard condominium prices saw a more modest increase of 1.9 per cent to $204,755. By the end of 2013, prices are expected to continue to rise by 1.6 per cent, while unit sales are projected to remain flat.
In Vancouver, detached bungalow prices dropped 3.2 per cent year-over-year to $1,052,500, and standard two-storey homes decreased by 2.3 per cent to $1,151,250. Standard condominium prices also saw a decline of 3.3 per cent to $490,475. Despite recent year-over-year price decreases, average Vancouver home prices are forecast to increase by 2.0 per cent by the end of 2013.