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Canada's real estate market is finding its balance.

A surge in new listings in November helped ease a chronic supply shortage and temper prices from a month earlier, easing fears of a bubble in the making even, though the rebound in the market continued unabated.

That's what economists were looking for because a steady string of monthly price increases could inflate an asset bubble and lead to a severe correction when interest rates eventually rise. For the past several months, prices have been rising month-over-month, with double-digit percentage increases posted year-over-year.

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Listings in November increased by 5 per cent compared with October, the largest one-month gain in two years, the Canadian Real Estate Association said Tuesday. The increase is a sign of consumer confidence, and signals a return to normalcy in what has been an extremely volatile market. More inventory ultimately means lower prices. The average national price in November declined by 1.1 per cent from October to $337,231, although that was still up sharply from the depressed levels 12 months ago.

"New listings are helping to balance the market and are letting a little bit of air out of the tires," said Gregory Klump, chief economist at the Canadian Real Estate Association. "We are starting to see affordability eat into demand."



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The number of houses on the market still remains at historic lows, however, standing 23 per cent below November, 2008. CREA compiles the data through its Multiple Listing System.

Overall, home sales nationally increased 73 per cent in November from the trough of a year ago, as buyers took advantage of record low interest rates to secure mortgages. While the number appears dramatic, the resale market virtually evaporated last year as the credit crisis hammered consumer confidence.

"The numbers look huge, but you are coming off such a bad year," said Millan Mulraine, economics strategist at TD Securities. "You're seeing big numbers in the recovery, but the pace and momentum has eased. You could definitely say it's not driving as fast as it was a few months ago."

While Peter Aceto welcomes a moderation in prices, the chief executive officer of ING Direct worries buyers are purchasing homes they won't be able to afford when interest rates move higher. He has advised his employees to run clients through different scenarios to make sure they realize how much more their payments would be under historically average circumstances.

For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,300, assuming a 25-year amortization period. A move to 5 per cent would boost the payment to $1,750. It's a 34-per-cent increase, something many family budgets wouldn't be able to accommodate.

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"I understand how people get caught up in a hot market, but they are doing some odd things that really worry me," he said. "You see multiple offers, and houses going for 20 per cent above asking. Those aren't normal things, and the high level of confidence out there really does make me scratch my head a little."

The Bank of Canada had a similar warning for consumers last week.

A Royal LePage survey of real estate brokers shows Canadian home buyers are also wary, although most don't believe a large price correction is imminent in 2010. The main concern among buyers, according to the 1,200 brokers who participated in the survey, is economic instability. They also worry about whether they'll be able to get the price they want for their house should they sell.

"People worry when they see the kind of volatility we've been through," Royal LePage chief executive officer Phil Soper said. "Abrupt changes in either direction cause concern, but as we edge toward normalcy in the market and everything levels back out those concerns should start to ease."

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