CREA Says Canadian Real Estate Prices Could Increase by up to 9.3% This Year

The Canadian Real Estate Association thinks residential property prices could increase by as much as 9.3% this year due to a strong domestic economy and continued interest from international buyers.

This does sound pretty high, especially as prices rose by 4.52% in the year ending June 2011, according to figures from the National House Price Index. The previous two years saw similar price increases, and when compared to the USA, real estate in Canada has performed very strongly over the last three years. House prices have increased right across the country along with rental yields, with Montréal seeing the strongest increase in rental yields at an average of 5.7%.

However measures have already been taken in two provinces to try to calm the market as the somewhat unpopular Harmonized Sales Tax was introduced in British Columbia and Ontario on July 1, 2010. New homes in British Columbia are now subject to an additional 5% tax on top of the standard 7% tax, and new property in Ontario is also subject to another 5% tax on top of their 8% provisional sales tax. April 2010 saw the introduction of more stringent measures towards lending, and borrowers are now finding it harder to qualify for mortgages.

While the CREA thinks prices will increase by nearly 10%, others are taking a more cautious and I think a more realistic view. The Canada Mortgage and Housing Corporation have predicted the housing market will remain stable during the next two years, and that a slowly growing economy will help keep house prices under control. The economy is predicted to grow moderately this year, and it's expected that the real estate market will maintain levels similar to last year. Mortgage rates are predicted to rise towards the end of the year and into 2013.

Economists at BMO have forecast that most of Canada will avoid a housing market crash with the exception possibly being Vancouver due to demand from Chinese investors.