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(Christinne Muschi/christinne muschi)

House prices to hit record: report Add to ...

Canadian house prices will hit a record $337,500, on average, this year and sales activity should also burst through an all-time high, a real-estate report predicted Monday.

National average home prices are expected to rise 5.4 per cent, with gains in all provinces, the Canadian Real Estate Association said. A rebound in activity in Canada's priciest markets, particularly British Columbia and Ontario, will juice gains.

Sales are booming too. National sales activity will reach a record 527,300 units this year - up a sizable 13.3 per cent from last year and 1.2 per cent higher than the previous peak in 2007.

"Low interest rates are expected to boost housing demand in the first half of the year, resulting in strong annual sales growth in nearly all provinces in 2010, led by British Columbia and Ontario," the association said.

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Real-estate activity has been blistering in recent months, fuelled by record low interest rates. The Bank of Canada said this month it will keep its key lending rate at 0.25 per cent through to mid-year unless its inflation outlook changes.

The flurry of activity has sparked concern about housing bubbles though. The heads of the country's six largest banks have expressed concern over a potential slide in house prices and said they want Ottawa to tighten rules on mortgages, The Globe and Mail reported Saturday.

Yet Finance Minister Jim Flaherty seems to have no near-term plans to tighten mortgage rules.

"Right now, there is no compelling evidence of a housing bubble in Canada," he told reporters this weekend, though "we're continuing to watch" how the market evolves.

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Building activity is also humming. Builders broke ground on more homes than expected last month, led by a boom in British Columbia, home to this month's Winter Olympics.

Housing starts jumped 5.8 per cent to 186,300 units in January on a seasonally adjusted annual basis with both multiple and single starts gaining, Canada Mortgage and Housing Corp. said in a separate report Monday.

The latest increase comes after starts last year totalled 149,081 units as activity picked up later in the year, the national housing agency said. Housing starts dropped as low as 118,500 last April before partly recovering. Before the recession, they were running as high as 220,000.

Economists figure Canadian housing starts should average around 175,000 units per year to keep pace with population growth.

"Canadian residential building activity is in full recovery mode, pulled along by strong housing demand which, in turn, has been juiced by low interest rates and improved confidence," said BMO Nesbitt Burns economist Robert Kavcic.

Demand could taper off later this year, though, as interest rates climb and some buyers in B.C. and Ontario rush to buy ahead of a new sales tax, he added. "Given that supply still has some catching up to do, housing starts should hold up around current levels through the remainder of 2010."



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Some of this month's increase may stem from temporary factors, such as the Olympics, economists said.

"With part of the uptick in starts likely to be coming as a result of temporary factors, namely the surge in Olympic-related housing in B.C., we believe that this report overstates the true strength of the recovery in residential construction and expect a modest pull-back next month," said Millan Mulraine, economics strategist at Toronto-Dominion Bank.

British Columbia led last month's gains. Urban starts soared 19.8 per cent in Canada's westernmost province. They rose 7.3 per cent in Quebec, 2.3 per cent in Atlantic Canada, and 1.5 per cent in the Ontario. In the Prairie region, starts dropped 4.8 per cent.

Analysts polled by Bloomberg News had expected 180,000 starts in the month.

Urban multiple starts increased 5.7 per cent in January to 76,300 units while single urban starts climbed 3.3 per cent to 88,900 units.

"These increases are similar to the ones that occurred in December," said Bob Dugan, CMHC's chief economist.

With files from Bill Curry and Kevin Carmichael.

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