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RICS weighs in on Canadian housing prices


Simon Rubinsohn, chief economist of London-based RICS, predicted in the most recent RICS Global Real Estate newsletter that price growth, although subdued, will continue in the Canadian housing market. Data on the price of newly built homes and land in Canada for the month of December were released on February 11th, and in the newsletter he makes three observations:

“We expect prices to be close to flat as the market continues to lose momentum in the face of affordability pressures and the impact of past increases in interest rates. The average five year mortgage interest rate rose from 5.25 per cent in July 2005 to 6.75 per cent last December.”

“The annual rate of price increase has already slowed from 12.1 per cent in August of 2006 to 6.1 per cent in November. This could actually rise with the December figures as the monthly change in the same month a year earlier was zero. But the big picture is of price rises slowing after a boom that was primarily driven by one province of the country: Alberta.”

“Given the prominence of oil in Alberta’s economy, it has been a massive beneficiary of the boom in oil prices over recent years. This boom has fuelled an incredible rise in house prices in the province. They have doubled since February 2003 with the annual growth rate peaking at an amazing 52 per ent in August of 2006. The secondary effects of the oil boom poured fuel on the fire. As the economy boomed, people started to move to Alberta. The population of this state has risen by eight per cent in the past three years, well above the three per cent increase for Canada as a whole. With Alberta’s housing market continuing to slow rapidly, the Canadian market is likely to calm down as 2008 progresses.”




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