Home prices expected to stay flat in 2012: RBC

The Canadian housing market is making a transition to a much slower pace growth compared to the surge seen in the past decade, according to a Royal Bank (TSX: RY) housing market outlook.

The report released Thursday said home resales are expected to grow by 0.9 per cent this year and remain unchanged in 2012, while home prices will increase by 4.4 per cent this year and 0.4 per cent in 2012.

“Such results would mark a significant slowing relative to the performance during the 2002-2008 period,” senior economist Robert Hogue wrote in the report.

Since 2008, the transition in the housing market has been extremely volatile reflecting the impact of events both at home and abroad, it said.

Those changes include a global recession, as well as domestic policy changes — such as a sharp drop in interest rates, three rounds of mortgage rule changes and the introduction of the HST in Ontario and British Columbia.

“Our view is that less turbulent economic and policy environments will support a smoother process going forward,” Hogue said.

“The main policy shift will be one toward progressively higher interest rates, which will cool demand but not deep-freeze it.”

At the provincial level, RBC forecasts that the Alberta market will post the strongest growth in home sales this year and next, while it expects a modest decline in Quebec.

Meanwhile, “perplexing developments” in the Vancouver area, where average home prices have surged despite slower resales, are expected to be partly reversed, making B.C. the only province to see a price decline in the bank’s 2012 forecast.

Home sales have rebounded from lows reported last summer to 465,000 units in the first quarter, although they have softened to 443,000 units in the second quarter.

“This slowing is in line with our view that the latest changes in mortgage lending rules announced in January of this year and implemented in March and April brought forward some demand that would have otherwise occurred later on,” Hogue said.

“In turn, the second-quarter slowing represented somewhat of a ‘payback,’ which will then be followed by a return to mildly stronger activity.”


Source: VINCE TALOTTA/TORONTO STAR