Canada's real estate market is growing at a snail's pace, reinforcing hopes the housing sector will glide to a soft landing instead of crashing.
Worries over the economy have dampened demand in some resale housing markets, but the prospect of low interest rates for at least another year is luring buyers and helping create an equilibrium in most parts of the country.
Numbers released by the Canadian Real Estate Association on Monday show that sales volume was up 2.2 per cent in all of 2011 compared to 2010, and the average price for a house inched 0.9 per cent higher over the course of the year – to $347,801 in December.
The association said buyers were getting increasingly cautious toward the end of the year, but low borrowing rates should help keep properties moving through 2012.
Doug Porter, deputy chief economist at BMO Capital Markets, said the modest increases "suggest that the market can achieve a soft landing," instead of a crash that could rock the foundations of the Canadian economy – as the real estate meltdown did in the United States.
Overall, "the December sales and price figures … are incredibly well behaved and there is nothing unusual going on," he said, an indication this moderate scenario will continue.
Concerns about a bubble were spurred by the steady rise in home prices over the past decade, with only a brief interruption in 2008, he said. Prices are now roughly double where they were a decade ago, far outpacing gains in income.
CREA's chief economist Gregory Klump said the moderating sales numbers "don't point to signs of an imminent collapse." To get a housing market bubble to pop "you need a trigger – a massive oversupply, or a massive decline in demand – and those triggers are not in the cards when you look at the prevailing economic forecast."
CREA has projected that the number of house sales will grow by about half a per cent in 2012, and that average prices will be flat.
Still, there are two key concerns hanging over the housing market: the level of real estate prices in Vancouver and the condominium construction boom. Neither of those markets have shown signs of a catastrophic decline, even though some people have been predicting it for years.
In Vancouver, sales volume grew 5.8 per cent in 2011 compared with 2010, although activity slowed considerably at the end of the year. Prices in December were about 2 per cent lower than in the same month of 2010.
Mr. Klump said the moderation of prices in Vancouver – after a big runup late in 2010 and early in 2011 – is a good sign that a bubble can be avoided. As for condominiums, he acknowledged that speculative investment by foreign buyers is helping push up prices, but he noted that the number of unoccupied condo units "is not at worrisome levels."
In most markets across Canada, local conditions usually determine house prices and the volume of house sales, and swings tend to be more moderate than in Vancouver or Toronto.
In Calgary, for instance, the number of sales has been relatively flat in recent years, and prices have not increased significantly since they fell after a big jump in 2007, real estate agent Jim Sparrow said. He expects solid price increases going forward, but nothing that would resemble a bubble.
While the oil patch is doing well, "people are uneasy about what is going on in Europe, and they are uneasy about what is going on in the United States," he said. "While there is a lot of money here, people aren't taking their wallets out."
One key indicator in the Calgary housing market is a drop in rental vacancy rates, Mr. Sparrow said. People who are moving to Alberta to work in the oil patch tend to rent apartments for a while, then buy a house. He's hoping many of those renters will soon become buyers.