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Cooling housing market forecast by Royal LePage

01/12/2012 09:54 EST | Updated 03/13/2012 05:12 EDT

One of Canada's largest real estate companies expects home prices to increase by less than the inflation rate in 2012.

In its quarterly forecast, Royal LePage says it expects the average home price in Canada to increase by 2.8 per cent by the end of 2012.

That's less than Canada's current inflation rate, which came in at 2.9 per cent in November, the most recent month for which Statistics Canada data is available.

The company says home prices increased by between 3.6 and 6.1 per cent in the fourth quarter of 2011 compared with a year ago.

The latest data from the Canadian Real Estate Association shows the average price of a home sold in November across the country was $360,396, a 4.6 per cent increase over the same month a year earlier. Though a strong rise historically, it pales in comparison to some of the gains seen in recent years.

In the immediate aftermath of the recession in 2008-09, Canadian home prices rose by double digit percentages in most markets. But over the last five years, Royal LePage noted on Thursday, average home prices have grown by only 3.5 per cent compounded annually, well below the long-term average rate of appreciation.

Predictions of a housing market correction became more prevalent through 2011, but the market proved resilient as low interest rates and a comparatively stable economy spurred demand for all housing types. Royal LePage said it doesn't expect a national price correction until 2013 at the earliest

"In the recovery period following the 2008-09 recession, I found myself repeatedly speaking of 'irrational exuberance' in the Canadian housing market," Royal LePage president Phil Soper said. "Expectations were too high and the pace of expansion unsupportable."

"With this report, I find myself in exactly the opposite position. Widespread calls for a major real estate correction in 2012 simply can’t be justified," he said.

The report says Royal LePage expects to see cities with commodity-based economies, such as Calgary, Regina and Winnipeg, out-perform larger urban centres such as Toronto and Vancouver this year.

Calgary’s average house prices are forecast to climb 3.6 per cent in 2012. In 2011, the largest average price increase occurred in Regina, where average prices for standard two-storey homes rose 19.5 per cent year over year.

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