TORONTO - Canada's housing market was one of the best as well as volatile performers among advanced countries in 2010, but appears poised for a much more lacklustre turn next year, Scotia Economics says.
This year, Canada was among six of 12 countries studied that saw home prices increase, according to the bank's year-end Globe Real Estate Trends report issued Thursday. Other countries which saw price advances included Australia, the United Kingdom, France, Sweden and Switzerland.
Prices in the U.S. and Germany were flat, and those in Ireland, Italy, Japan and Spain fell.
In Canada, an unusually active winter and spring -- prompted by pent-up demand coming out of the recession, along with expectations of rising interest rates and higher taxes being introduced in two provinces -- gave way to an unusually soft summer.
Sales returned to a more typical, sustainable level in the fall.
Adrienne Warren, senior economist at Scotia Economics, predicts a more subdued Canadian market in 2011 as interest rates remain near historical lows but in a climate of global economic uncertainty.
"We are neither overtly optimistic nor pessimistic regarding the outlook for 2011," Warren wrote in the report.
"We anticipate a fairly lacklustre year for residential housing, with modestly higher sales volumes and flat inflation-adjusted prices," she said.
Most economists expect the Bank of Canada to leave interest rates unchanged at one per cent until the middle of next year, which would keep variable mortgage rates low as well.
"This is an extremely powerful inducement for both first-time and move-up buyers and should maintain a decent level of sales," Warren said.
However, demand will likely be tempered by more moderate employment and income growth as governments exercise more restraint in public sector hiring, which has accounted for one-third of net new jobs this year.
Warren predicted the bigger risk to consumers will be felt in 2012 when more significant interest rates hikes take hold and record high home prices strain affordability.
Canada's housing market mirrored the wider experience of global residential real estate markets in 2010, which saw a modest but uneven recovery that lost strength in the second half of the year. Ultra-low interest rates around the world and gradually improving economic conditions supported the recovery, the report found.
Several uncertainties could keep many global markets relatively flat as buyers remain on the sidelines, Warren said.
"Despite still attractive borrowing costs, the expiry of purchase incentives in many markets, the relatively slow pace of job creation and mounting concerns over the financial strains facing debt-heavy developed nations are weighing on confidence," Warren said.
Australia's housing market was the leader in 2010, where demand is supported by a low unemployment rate, while tight supply added upward pressures on prices. Warren expects Australia's market will slow next year as consumers grapple with higher interest rates.
Meanwhile, south of the Canadian border, U.S. home prices stabilized this year after taking a huge dive in 2009 amid the widespread mortgage and foreclosure crisis.
"While this semblance of normalcy is encouraging after the near 30 per cent cumulative price correction of the prior four years, the expiry of the home buyers' tax credit at the end of April and a weak job market have kept overall sales at relatively depressed levels through the fall," Warren said.
An International Monetary Fund report released Wednesday said Canada's overheated housing market, combined with record levels of consumer debt are risks that could curtail future economic growth.
It said Canada's housing sector has reached its peak and may be due for a correction, although a collapse is not likely.
The Canadian Real Estate Association has projected a 4.9 per cent slide in sales this year and a nine per cent decline next year. The drop is tied to lacklustre economic and job growth, weak consumer confidence and interest rate hikes that are expected to resume next year.
However, it said average home prices are expected to rise by 3.1 per cent across the country this year, reaching $330,200. Next year, prices are projected to fall by 1.3 per cent to a national average of $326,000, tied to weakness in British Columbia and Ontario.
