Canada's urban hotspots set for subdued house-price rises in 2019: Reuters poll

By Mumal Rathore (Reuters) - House prices in two of Canada's biggest cities will, at best, keep pace with inflation next year along with the national market, according to a Reuters poll of property market analysts, who mostly said the days of huge price swings are over. The broader housing market has been subdued for almost a year now. But in the financial capital Toronto, and in Vancouver on the Pacific coast, rampant speculation had sent prices soaring until very recently, drawing international attention to both cities as global hot spots. A combination of local measures aimed at taking the steam out of those markets, as well as interest rate rises from the Bank of Canada, appear to have returned expectations for both those cities to low single-digit inflation rates. Property market analysts polled Nov 16-28 predicted national house prices will show no growth this year, well below 1.7 percent rise forecast in a poll taken in the previous quarter. House prices will rise 2.0 percent next year, slightly lower than the 2.1 percent expected previously. The survey is the latest in a series of Reuters polls on major property markets which have also tended to come to the same conclusions: After a period of strong house price rises, expected future gains will be in line with inflation. The subdued nature of the latest Canada forecasts is remarkable, given most housing markets, after running hot and pushing prices beyond the upper limits of affordability, tend to correct sharply before leveling off again. Affordability has become a problem, particularly for large cities. Toronto house prices are expected to rise 1.3 percent this year, well below the 2.0 percent view in the previous poll. The expectation for next year remained unchanged at 2.0 percent. Average Vancouver house prices were expected to rise 2.3 percent this year, lower than 5.5 percent in September's poll. In 2019, house price inflation is forecast to ease. Unlike in the United States, where house prices fell by a third or more in some areas from peak to trough late in the last decade, Canada's housing market has been moving up in nearly a straight line for the past two decades. Toronto house prices more than doubled over that period, putting single-family homes out of reach for many, while average house prices in Canada are up more than 56 percent over the same period. Still, most analysts surveyed said a significant correction is unlikely, in part because policymakers are well aware of the potential danger to highly indebted households of any attempts to quicken the pace of interest rate rises. Canada's central bank has already delivered three 25 basis point interest rate rises this year, to 1.75 percent. "The BoC is well-attuned to the housing market and economic conditions. The last thing it wants is to undo a rate hike due to its overreaction or unwise judgment," said Helmut Pastrick, chief economist at Central 1 Credit Union in Vancouver. Rates are expected to rise another three times next year, to 2.50 percent, according to a separate Reuters poll of economists at the end of last month. With a relatively weak Canadian dollar, part of the pressure on the central bank to raise rates as the economy expands at a decent clip stems from a need to keep pace with the U.S. Federal Reserve and not open a wider rate gap. But there has been talk in recent weeks of the Fed possibly considering a pause or raising rates more slowly next year, easing that pressure somewhat. [nL4N1XR47P] "The Bank of Canada clearly considers that the housing market, and therefore the financial system, is vulnerable to rises in interest rates and should proceed carefully," noted Marc Pinsonneault, economist at National Bank in Montreal. He pointed out, like others, housing sales in Toronto and Vancouver have fallen markedly since curbs were introduced on the market, as well as interest rate rises. "But supply in terms of active listings has remained lower than in (the) previous housing correction period, so current market conditions are balanced instead of favorable to buyers." Housing starts are also likely to slow toward the end of next year, the poll found, to a 185,000 annualised pace. That is down from 200,000 in a Reuters survey three months ago and below the last reported rate of 205,900 in October. Over 60 percent of 14 poll respondents said major urban housing markets in Canada have stabilized, putting an end to the wild price swings of recent years. The rest said those markets have not stabilized. (Writing by Ross Finley; Polling and reporting by Mumal Rathore; Editing by Bernadette Baum)