November 3rd - 2011

ON THE MARKETS: House prices rally due to low rates, stable economy

The average price of a home in Canada increased between 5.7 and 7.8 per cent in the third quarter of 2011, compared to the previous year, according to a recent Royal LePage report.

The average price of a home in Canada increased between 5.7 and 7.8 per cent in the third quarter of 2011, compared to the previous year, according to a recent Royal LePage report.

The strength of home price increases in the third quarter defied expectations, as very low interest rates buoyed consumer confidence in a comparatively stable domestic economy, according to the Royal LePage House Price Survey of 2011’s third quarter.

“The strength in Canada’s national housing market conceals signs of predictable softening in some regions,” says Phil Soper, president and chief executive of Royal LePage Real Estate Services. “The third quarter saw a return to a normal seasonal business cycle as price appreciation slowed in many areas – with some average values even falling slightly – after the busy spring trading season. A broader slowdown is expected in the months ahead, but fears of a US-style correction are completely unfounded.”

In Ontario, the cities of Ottawa and Toronto played key roles in price increases, says the report. Ottawa showed “healthy price appreciation” in all three housing types: Two-storey homes in the nation’s capital rose on average 8.4 per cent, while condominiums rose 7.9 per cent and detached bungalows grew by 7 per cent.

Similarly, Toronto witnessed impressive price gains due to a lack of supply. Two-storey homes increased 7.6 per cent year-over-year, while detached bungalows rose 9.4 per cent over the same period, and condominiums grew by a healthy but more modest 6 per cent, due to higher inventory.

In the third quarter of 2011, the national average price for a detached bungalow rose 7.8 per cent year-over-year to $349,974, while standard two-storey homes rose 7.7 per cent to $388,218 and standard condominiums rose 5.7 per cent to $239,300.

“A resilient domestic economy, coupled with the stimulative effect of ultra-low interest rates, has extended the post-recession bounce in house prices, but there is evidence of over-shooting in some markets,” Soper adds. “Although the commentators are predicting that the sky will fall on the Canadian housing market in a US-style implosion, we lack the structural conditions that precipitated the housing crash in the United States six years ago.”

Visit www.royallepage.ca and click on Q3 House Price Survey for more details.

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