14 November 2010

Residential Property Prices Set To Fall in 2011

Thursday, 11 November 2010 13:10

All signs point downward, in terms of residential property prices for 2011, according to the Canadian Real Estate Association.

According to recent findings, prices are predicted to fall 1.3% in 2011 after a rise of 3.1% this year. Additionally, there is an expectation that sales numbers will continue to fall as weak economic prospects put downward pressure on demand, despite interest rates being low. They warn that these numbers could fall by 9% next year.

‘Housing demand and supply is stabilizing. That's good news for home buyers, who will feel less hurried to make an offer than they did when transitory factors ignited housing demand in early 2010. It's also good news for home sellers, who will feel more confident about price stability now that the housing market has become balanced,' explains CREA chief economist Gregory Klump.

Citing unfavourable economic conditions as the root cause,  CREA's stats for the said three months ending in September tell a story of weaker than expected results, due to ‘lacklustre economic and job growth and muted consumer confidence'.

Klump feels that consumer sentiment, while better than it was, has to improve before real improvements can be seen in the market.

While sales activity was began weakly in the third quarter of 2010, it has picked up steam.  There is momentum gaining for home sales activity, indicating that the resale housing market is stabilizing. However, CREA has had to adjust their annual forecast as a result of weaker than expected third quarter activity.

Forecasts for national sales activity indicate that expectations are now to reach 442,200 units in 2010, representing an annual decline of 4.9%. While monthly levels for sales activity show stability, year on year comparisons are likely to remain pulled thin well into 2011 due to the record level activity reported in late 2009 and early 2010.

Similarly, CREA is predicting in 2011, for all provinces to see slight price gains, with the exception of British Colombia, Alberta and Ontario.  Because there is lower sales activity in British Columbia and Ontario they think there will be a decline of 1.3% in the national average price to $326,000.

Debt repayment is at the forefront of many consumers' minds- rather than the accumulation of new debts. Says Klump, ‘Many households will be focused on paying down their debts before the Bank of Canada resumes hiking interest rates next year. Economic uncertainty is likely to keep potential homebuyers in a cautious mood, so the continuation of low and stable interest rates is unlikely to cause housing demand or prices to swell.'

Forward movement of the market will still rely heavily on interest rates. CREA expects that next year will herald in more medium-range interest rates, which are conducive to favourable, stable housing market conditions.


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