Canada Mortgage and Housing Corp. (CMHC) released its housing forecasts for the country this week, in the midst of one of the hottest real estate markets Canada has ever seen. The federal government housing agency says that while rising interest rates should cool the market a little bit, there are still a couple of very good years ahead for Canadian real estate agents.

The Canadian Real Estate Association says there were 40,665 units sold through the Multiple Listing Service in March, the second-highest level on record. "The national MLS residential average price rose by 10.4 per cent year-over-year to $223,483 in March, surpassing its previous record set one month earlier by 1.3 per cent," says the association.

It credits full-time job growth, strong consumer confidence and the decline in five-year mortgage interest rates with maintaining the hot market. CMHC predicts that across the country, 438,400 resale homes will change hands this year, a slight drop from last year's record of 439,500. Its prediction for 2005 is 419,600 resales.

CMHC chief economist Bob Dugan says, "Gradually rising mortgage rates next year and a better balance between listings and sales in the existing home market, will ease new home construction in 2005." He says the resale housing market "will decrease slightly from last year's record levels. Moderate increases in mortgage rates next year, along with higher house prices, will cause existing home sales to continue to edge lower in 2005. As sales moderate, relative to the number of listings on the market, growth in the average price of existing homes will slow from 7.7 per cent this year to 4.6 per cent in 2005."

The Greater Vancouver area in British Columbia is the most expensive real estate market in the country, reporting an average price of $362,797 in March. But the Real Estate Board of Greater Vancouver says the "benchmark" price of a typical detached home in Greater Vancouver is currently $485,130. The board says prices have gone up by almost 20 per cent during the last year.

In Toronto, the country's largest real estate market, CMHC expects prices to rise to $308,000 by the end of this year, an increase of 5.5 per cent over 2003. Unlike the rest of the country, CMHC says Toronto will beat last year's sales record, with 80,000 MLS sales by the end of this year. That's slightly better than last year.

However, Ed Heese, senior market analyst at CMHC in Toronto, says new listings will rise by about 10 per cent this year, giving homeowners more choice and stabilizing the market as it moves into 2005. He says prices will continue to rise faster than the general rate of inflation, but it will be a slower pace than during the last few years.

CMHC says the pool of first-time buyers, which is credited with driving the market through nine years of expansion, is shrinking, and that move-up buyers are becoming increasingly important. It says as rising prices produce equity gains for existing homeowners, more people will be prompted to sell their homes and move up to something better. Heese says many of these buyers are in the 45 to 64 age group, and that employment growth is stronger for this group than for younger people. That's another factor that is boosting repeat buyer demand.

He says many of these buyers will purchase homes at the high end of the condominium market, or in the suburbs where they can purchase low-rise, detached homes. The largest average price increases in the Greater Toronto Area are also being seen in the suburbs. Oakville's prices are up 14.7 per cent compared to last year, and the communities of Ajax/Pickering, Brampton, and Mississauga also enjoyed average price increases of more than eight per cent. Price growth in the central city areas of Toronto are averaging less than one per cent, but the most popular neighbourhoods in the city continue to do well and bidding wars on homes are not uncommon.

While the market reminds some people of the late 1980s when the housing bubble burst and prices plummeted, CMHC maintains that economic conditions are much different now and that the market is sustainable.

Published: May 6, 2004

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Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at .