Will 2011 be a repeat of 2010 with buyers pulling sales forward into the early months in anticipate of higher interest rates later in the year? One of Canada's largest real estate firms is making that prediction.
According to a recent report released by Royal LePage, lingering low interest rates will continue to influence the Canadian real estate market in 2011. The report indicates that sales will be above forecast this year. According to their report, Royal LePage predicts that average home prices will rise three per cent to $348,600 in 2011, driven largely by a rush to buy in the first half of the year in advance of anticipated interest and mortgage rate hikes in the second half.
"Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels," said Phil Soper, president of Royal LePage. "2011 is expected to unfold much like 2010, when close to 60 per cent of sales volume occurred in the first half of the year in anticipation of interest rate increases that never materialized."
However, the number of transactions will be slightly lower than last year and activity will be modestly closer to the norm because the pull forward phenomenon last year was exacerbated by a tightening of mortgage qualification rules and the introduction of the HST in Ontario and British Columbia in the middle of the year.
Soper said the extension of low mortgage rates will be an unexpected boon to the market this year.
"Like many Canadians, we anticipated an end to the ultra-low interest rate era before year-end 2010," he said.
"Paradoxically, global economic weakness, particularly in the United States, allowed policy-makers and financial institutions to keep borrowing costs low, resulting in a stronger Canadian housing market and a better than forecast fourth quarter."
Average house prices rose between 3.9 per cent and 4.6 per cent in the fourth quarter of 2010, while price appreciation is expected to continue a moderate and steady climb throughout the current year.