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Real estate prices rising, but downturn expected: Study

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Canadian real estate prices and the pace of new home-building rose in the second quarter of 2012, but analysts warn the market could soon lost steam in a new report.

The study, done by Royal LePage, states that prices for all types of housing were generally higher in the second quarter of this year compared to the first quarter and also in comparison to the second quarter of 2011.

In the last quarter, prices rose across a variety of housing types:

  • Standard two-storey homes rose 4.7 per cent year-over-year to $408,423
  • Detached bungalows increased 5.5 per cent to $376,311
  • Standard condominiums increased 3.3 per cent to $245,825

The report also suggests real estate prices will continue to rise.

But analysts don’t predict only positive growth in the forecast, stating that some areas are becoming simply to expensive for buyers to keep up.

“We have had three years of solid house price appreciation in almost all regions of the country,” said Phil Soper, president and CEO of Royal LePage Real Estate Services. “Confidence in Canada’s real estate market is sound, but home prices cannot grow faster than salaries and the underlying economy indefinitely. Some regions have reached or perhaps even exceeded the current upper level of price resistance as buyers have embraced an era of historically low mortgage rates.”

The report also noted the recent mortgage changes announced by Federal Finance Minister Jim Flaherty, which is also expected to slow growth. These changes will strongly impact first-time homebuyers, which represents up to half of all real estate transactions.

“The most recent set of mortgage changes, the fourth in four years, is also the most aggressive. The cumulative impact of these new regulations has created a significantly higher hurdle for young buyers seeking their first home and comes at a time when the market was slowing of its own accord. The timing of this intervention was unfortunate,” Soper said.

For Toronto, the report states that homes made an average gain from 5.5 to 8.3 per cent. At the end of 2012, average house prices in Toronto are forecasted to increase eight per cent over 2011.

As another piece of analysis, last week the Toronto Real Estate Board (TREB) reported the city’s housing sales were down 13 per cent in June, as opposed to the same time last year.

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