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Canadian home prices beginning to stabilize
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The Canadian Press
Canadian housing prices have been going up this year but are showing signs of levelling off, according to a Scotiabank real estate report.
The report looked at real estate markets in 10 developed economies and found Canada was the top performer in the third quarter in terms of inflation-adjusted price increases.
Canadian home prices were up 4.8 per cent. By contrast, home prices in the United States were down 7.5 per cent compared with the third quarter of 2010.
Only two other countries — France and Switzerland — showed increases in housing prices in the quarter while there were declines in the seven other markets tracked.
Scotiabank says home prices have been weighed down in many countries by the slow pace of economic recovery, concerns about government debt levels, weak consumer confidence and high unemployment.
In the United States, where there is a lingering oversupply of unsold and foreclosed properties, a sustainable recovery could still be several years away, the report says.
In Canada, the majority of local markets are experiencing a balance between demand for housing and the supply of properties for sale.
The report notes Canada is in the 13th year of the current upward pricing trend — a relatively long time considering that market cycles in the advanced countries average about 12 years.
"While the sector's continued buoyancy is impressive, monthly data through November suggest prices have levelled off since the spring, with conditions in the majority of local markets in 'balanced' territory," Scotibank's report says.
"Ultra-low interest rates are still attracting buyers, but increased economic uncertainty combined with some recent slowing in the pace of hiring could dampen demand in the new year."
The Scotiabank report is consistent with an analysis this week from RBC but less gloomy than a projection from Bank of America Merrill Lynch.
Craig Wright, RBC's chief economist, said Monday he fully expects domestic demand will cool, including housing, given that household debt levels reached an all-time high of 150.8 per cent of disposable income in the third quarter.
In the past year consumer household debt grew, but at the slowest pace since 2002, Wright said.
In a separate paper, Bank of America Merrill Lynch said Canadian home prices are "showing many of the signs of a classic bubble."
"The only way these valuations can be explained is by the record low mortgage rates. Under more normalized interest rates, home prices would actually look 25 per cent overvalued based on current prices," the Merrill Lynch economists said.
Even so, Merrill Lynch said it expects Canadian home values to drop only five per cent in the first half of next year.
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