Canada home prices may rise 10 percent in 2010: report

Dec. 1, 2009 | Market Update | By Aaron Rossetti

TORONTO (Reuters) - Canadian home-resale prices are likely rise in 2010 at an even faster pace than this year but a dangerous bubble probably won't develop, TD Economics said in study published on Tuesday.

The average price of an existing home in Canada is expected to surge 9-10 percent next year to about C$346,000 as sales climb to 475,000. In 2009, the average price rose an estimated 4-5 percent on an annual basis.

But the sales momentum, which TD expects will last six to 10 more months, should not translate into a "bubble" as the cost of ownership, when lower interest rates are taken into consideration, has fallen in recent months.

The residential housing market froze late last year in the wake of the global financial crisis, but its swift recovery has prompted some concern about the chances of a sudden collapse. Sales of existing homes rose to a record monthly high in October.

TD described the Canadian market's downturn and subsequent recovery "as V-shaped as can be." It partly attributed the rebound to pent-up demand after last year's slump.

Over the next few years, sales growth should moderate as more supply comes into the market and interest rates rise, TD said in its resale housing outlook report.

In 2011, eroding affordability is likely to weaken sales by more than 10 percent to 421,200 units while prices rise 1.6 percent to C$351,600. In the following two years, prices and sales are expected to rise modestly.