Monday, May 15, 2006

Hot housing market expected to cool

Boosted by Alberta�s red-hot housing market, national home sale prices jumped by the highest amount in more than 16 years in March, Statistics Canada said this week.
Eye-popping increases of 29.6 per cent in Calgary and 14.3 per cent in Edmonton helped to increase the national average rise in houses prices to an annualized 7.6 per cent in March � an increase not seen since at least January 1990.

More moderate price increases were seen in Vancouver, with a 6.9 per cent rise, while Quebec saw a 6.6 per cent increase.
The average price for a residential property in the Halifax area was $279,748, a 4.8 per cent increase last year. Toronto reported a 4.3 per cent annualized increase while in Montreal, home prices rose by 3.3 per cent.

The only monthly drop was in St. John�s, Nfld., where prices slipped 0.1 per cent from February. But if you haven�t bought your home yet, don�t panic � the federal housing agency says the market should begin to soften in 2006.

Rising mortgage prices and market saturation will begin to cool demand, at least a bit this year, says Canada Mortgage and Housing Corp.
Home construction starts will slip to 222,200 units this year, down from the 225,481 units that were built last year, the Ottawa-based agency said. 'Higher mortgage carrying costs and rising house prices will temper housing demand this year,' Bob Dugan, CMHC�s chief economist, said in a statement.
But that still represents a higher rate this year than previously forecast by CMHC.

Booming demand in Alberta and British Columbia led the agency to increase its outlook for this year’s construction to 208,700. Still, a gradual cool is coming, says CMHC.
"Over the medium term, housing starts will continue to slow gradually, reaching 184,400 units by 2010," Dugan said.
The resilient housing market is one more factor that will likely convince the Bank of Canada to raise short-term interest rates in late May, said Marc Levesque, chief fixed income strategist with TD Securities.

"This is just one more tick mark in the tightening column," for the central bank, which has already boosted its key interest rate on six consecutive opportunities to four per cent. "This is one sector of the economy that is being supported pretty well by low interest rates."

Record low unemployment and a flourishing resource sector all threaten to push up inflation, something the central bank desperately aims to avoid. Its next chance to raise rates comes on May 24 and many analysts have forecast another quarter-point rate hike as the central bank aims to hold the consumer price index to about two per cent.

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