Home prices should rise a 5% by year end

Thanks to low mortgage interest rates and housing demand,

Canada’s housing market will continue to stay hot for the rest of the year, with home prices expected to rise on low interest rates and increased demand, says a report by Economics.

The bank upgraded its forecast for the real estate sector Thursday, predicting that home prices will gain an average of five to six per cent by the end of 2014.

In February, the bank had expected Canadian home sales to flatten out, and called the market overvalued by about 10 per cent. It did not give an estimate on how much it thought prices would rise or drop. That earlier forecast was based on the belief that mortgage rates would creep up in the spring, but rates still sit near record lows and continue to prop up demand.

Low interest rates have helped with the affordability of condos, where prices are at their “most favorable.” First-time buyers who may have been pushed out of the market earlier may also be returning back due to the rates, which have in part driven the demand for single-family homes.

In May, the national average resale home price grew 7.1 percent year over year — surpassing its 10-year average growth rate.

Those factors should be enough to “tip the market” back into one that favors buyers.

“Softer housing demand, combined with rising listings, will likely push the Canadian housing market towards a buyer’s market over the next year and a half. As home buyers have more choice, they will also have more bargaining power and price pressure will ease.

The report said the “soft landing” has already come to certain regions, like areas east of Toronto, while expensive cities “with more froth” like Toronto, Vancouver and Victoria will soon be seeing more weakness.

The Real Estate Board of Greater Vancouver reported Thursday that home sales rose 28.9 per cent to 3,406 in June. The total compared with 2,642 sales recohome buyersrded in June 2013 on the Multiple Listing Service. Last month’s sales were 0.6 per cent above the 10-year sales average for June.

Meanwhile, home prices in Edmonton and Calgary were expected to post the biggest growth rate over the next two years, as those cities continue to see population and employment gains.

Experts are predicting condo prices to fall by about two per cent next year, as an estimated 135,000 units currently under construction become available. This in turn will help boost the rental vacancy rates, keep rents flat, and make buying condos for investment purchases less attractive.

It’ll also make single-family homes — which are priced on average about $200,000 more than a condo — less viable for those looking to upgrade.

As such, move-up buyers who would like to upgrade mortgage interest rates their condos to a single-family home may find it difficult, noting that prices for single-family homes have rose an estimated eight per cent this year, and were expected to go up by another two per cent in 2015.