Average house prices forecast to rise by 4.5% nationally in 2005

The average house price in Canada is forecast to rise by 4.5 per cent to $236,588 in 2005, as listing levels rise and demand reacts to the price increases of the past year according to a Market Survey Forecast 2005 report. Unit sales are projected to decline by 1.0 per cent to 457,325 units sold in 2005.

If 2004 represents a record pace in terms of volume and price increases, 2005 will represent a market in equilibrium where both buyers and sellers will equally share the benefits. Resale activity will dip only slightly as the market adjusts.

"Relative to the breakneck pace of 2004, the Canadian housing market will experience a deceleration of the frenetic sales activity that has characterized the market in the past several years," said Phil Soper, president and chief executive officer, Royal LePage Real Estate Services. "We currently have the highest levels of listing inventory available in the past four years, and this will clearly have a mitigating effect on price increases."

Added Soper: "Sound market fundamentals will support a robust 2005 housing market, but what will emerge is more normalized, sustainable housing market activity."

Buyers will continue to benefit from historically low interest rates as the low cost of borrowing money extends homeownership to a majority of Canadians. Interest rate increases are likely to be moderate, particularly in view of the strengthening Canadian dollar, and gradual increases will work to temper the current torrid pace of market activity.

Highlights of the nine markets examined reveal that in 2005 the three most expensive cities to purchase real estate will be Vancouver, Toronto, and Ottawa.

Only marginal increases in property values are slated for Toronto (2.5%) in 2005.

2005 Trends at a Glance
Market fundamentals - Prospects for the Canadian economy are based on sound economic fundamentals: an economy that should grow at or close to its long-term pace of three per cent, low inflation, federal and trade surpluses, positive job growth, and strong domestic demand from both households and business.

Employment - Despite little change on the manufacturing side, overall job growth should continue, driven in large part by construction jobs thanks to the housing boom. This translates into increasing personal disposable income and strengthens housing demand.

Consumer confidence - With strong disposable income growth and an employment rate near an all-time high, consumers are buoyant. Overall household debt is manageable and there is still the propensity to spend. This buoyancy propels housing demand as well as the demand for consumer goods to support the housing purchase.

Population growth - This growth is fundamental to our housing markets. Offsetting the very small natural rate of population growth in Canada is our dependency on immigration. The net migration rate is on target and could exceed expectations.

New home market - This market is under pressure from rising construction costs and the upward trend in mortgage rates. Overall starts may drop slightly, but the adjustment will vary by region and will not be sufficient to impact strong employment in the construction sector.

Things to watch for - Possible challenges in 2005 include our vulnerability to escalating energy prices, appreciation of the Canadian dollar, and possible softening of demand in the U.S. Fortunately nothing on the immediate horizon appears to directly threaten the prognosis for a robust housing market in 2005.