National sale increase for Canadian Homes

Due to continuing affordability, the Canadian Real Estate Association (CREA) is calling for a national sales increase of more than 13 per cent this year compared to 2009.

It predicts about 527,300 resale homes will likely change hands this year -- a total that would surpass the existing 2007 record by 1.2 per cent.

Canada's economic health is improving at a faster pace that predicted, says deputy chief economist Doug Porter of BMO Capital Markets. "We're heading back to pre-recession levels on a number of indicators quite a bit faster than I think most people believed possible, despite concerns over how this would be a lacklustre recovery," he says.

Gross domestic product (GDP) was originally expected to grow by 3.7 per cent in the first three months of this year, an estimate Porter says could now be low.

Productivity is up 1.4 per cent and manufacturing sales are up 2.4 per cent.

"These figures suggest there's upside risk to that forecast and we could ultimately see something like we saw in the fourth quarter, when the economy barrelled ahead at a five-per-cent annual pace," say Porter.

In tandem with a resurging economy, consumers are taking advantage of low interest rates to get into home ownership, says CREA. Those low rates are expected to boost housing demand in the first half of this year, but will decline for the final six months because of expected hikes in mortgage rates as early as June.

The decline is expected to spill over into 2011, when sales could fall by just over seven per cent, says the association.

"Although interest rates are expected to rise, they will still be low enough to keep affordability within reach for many homebuyers," says CREA president Dale Ripplinger.

Indications are that rates will climb between 25 and 75 basis points (one per cent equals 100 basis points).

But Porter says "risks are growing" that the Bank of Canada will do more than hike by 25 basis points at each of its four meetings in the second half of this year.

Gregory Klump, CREA's chief economist, sees marginal increases.

"Fiscal restraint, a strong Canadian dollar and a subdued inflation outlook point to marginal interest rate increases over the next couple of years -- especially if the U. S, economic recovery proves to be weak and protracted," he says.

With sales activity pointing up in Canada, average prices will follow.

CREA numbers show a predicted 5.4-per-cent increase to the national average selling price to a record $337,500. In 2011, the price will likely slip back 1.5 per cent, again shadowing a decline in sales.

Thank you to Marty Hope for this article

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