Globe and Mail Update
Published Monday, May. 09, 2011 10:42AM EDT
Last updated Wednesday, May. 11, 2011 1:51PM EDT
The Canadian Real Estate Association has gone back to the drawing board again, saying the number of multimillion-dollar Vancouver deals have “surged unexpectedly” as it raised its forecast for the year.
The national trade association said the average national resale price will gain four per cent by the end of the year because of high prices in Vancouver. In its last forecast – made in early February – CREA said the price would advance 1.3 per cent.
Prices in Vancouver have gained almost 30 per cent in the last year, causing concern among many in the industry who are concerned about the sustainability of such gains. Douglas Porter, deputy chief economist at BMO Nesbitt Burns, said while sales have softened across the country the risk of a sharp correction is “highly concentrated in geographical terms.”
He said while sales have softened across the country, the risk of a sharp correction is “highly concentrated in geographical terms.”
In March, CREA said the national average resale price was an all-time high of $366,000. But if Vancouver is stripped from the figure, the average price would be $327,000. Twenty two of the 25 cities surveyed posted price gains in March, with Calgary, Edmonton and Victoria the only exceptions.
CREA also added that sales would also be stronger than it expected in 2011, although still slower than 2010. It expects 441,000 sales will take place, down 1.3 per cent from a year ago. It previously suggested a decline of 1.6 per cent.
Forecasting has proven difficult for the association – in November it said sales would fall by 9 per cent. In the same forecast, it said the national average price would pull back slightly in 2011.
Private sector forecasts are also varied – Capital Economics has suggested prices could fall as much as 25 per cent over the next several years, while the major banks expect prices to moderate as higher interest rates keep people out of the market.
CREA president Gary Morse said mortgage rates “remain very attractive and are keeping financing within reach for many homebuyers.
Those rates are expected to climb, however, and while inexpensive borrowing has helped many homeowners stay current on their payments there are signs that they are under increasing stress. In Alberta, for example, the number of people three months or more late on their mortgages is double the national average at 0.87 per cent.
The rising rate of delinquency comes as economists warn that Canadians are under rising pressure when it comes to servicing debts. As interest rates move higher in the coming months, many could find it even harder to make their monthly payments.
In a statement Monday, CREA’s chief economist Gregory Klump said even if rates increase they will be “within short reach of current levels.”
“Continuing job growth will underpin housing demand, keeping the housing market in balance and stabilizing home prices.”