Correction in store for Canadian housing

Fewer homes are expected to trade hands in the first half of 2013, predicts Royal LePage. This will slow the pace at which home prices are rising.

Still, by the end of 2013, the average national home price will be 1% higher than 2012.

Read: U.S. housing surge will help Canada

In Q4 2012, standard two-storey homes cost $390,444, a 4% year-over-year increase. Prices for detached bungalows increased 3.6% to $356,790. National average prices for standard condominiums increased 2% to $239,374.

“More home buyers moved to the sidelines as 2012 progressed,” says Phil Soper, president and chief executive of Royal LePage. “Our sturdy domestic economy and encouraging employment trends have emboldened sellers, and some have opted to let market conditions adjust before listing. Simply put, fewer home owners listed their properties in the second half of the year, which kept inventory levels lower, and supported home values.”

Read: Global housing markets still weak: Scotiabank

Soper noted the housing market is well into a cyclical correction and that fears of a sharp or drawn out collapse are unwarranted. Home prices have risen faster than salaries and wages for three years and the market requires time to adjust.

While some first-time buyers have been sidelined by new federal mortgage insurance rules, the cost of mortgage financing remains at historical lows and the desire to own property has not diminished. First-time buyers are adjusting to the new requirements by opting for cheaper homes or saving longer.

Read: Canadian home sales remain depressed

“After an extended period of frustrating bidding wars in key, supply-constrained regions, and spring-markets characterized by price increases that make financial planning difficult, Canadian home buyers will see momentum shift in their favour this spring. They should be met with more choice and stable prices,” says Soper.

Regional summaries

Halifax: Low inventory led to healthy year-over-year price appreciation for bungalows, two-storey homes and condos. Average price gains ranged from 3.5% to 7.3%. At the end of 2013, average house prices are forecast to be 1.5% higher than 2012.

Read: Canada’s cooling housing market not all bad Montreal: Average home prices were up year-over-year in the fourth quarter, as higher end units being sold to an active move-up buyer demographic skewed average prices upward, while first-time buyers adjusted to meet new mortgage regulations. At the end of 2013, average house prices in Montreal are forecast to be 3.8% higher.

Ottawa: Good employment and affordability resulted in healthy year-over-year price appreciation with gains ranging from 3% to 4.6%. At the end of 2013, prices are forecast to be up 1.3%.

Toronto: Lack of inventory creating pent-up demand produced strong year-over-year price appreciation in 2012. Detached bungalows posted an average increase of 4.9%, while standard two-storey homes increased on average of 6.2%. Standard condominiums posted a more modest average gain of 2.6%. At the end of 2013, prices will increase a more modest 1%.

Read: Toronto home sales fall, prices rise Winnipeg: A healthy local economy and low interest rates produced strong year-over-year price appreciation with average price gains ranging from 4.7% to 9.9%. At the end of 2013, prices are forecast to be 1% higher.

Regina: For the second year in a row, two-storey homes posted the largest average price increases across all housing types surveyed in Canada rising 16.8%. Detached bungalows and standard two-storey homes also posted gains of 5.3% and 5.9%. At the end of 2013, prices are forecast to be 4% higher.

Read: Condo buyers can’t afford fees: TD Edmonton and Calgary: Increased demand and low inventory resulted in healthy year-over-year price gains for standard two-storey homes and detached bungalows, while price appreciation for standard condominiums were relatively flat in both cities. At the end of 2013, average house prices in Calgary are forecast to increase 2.5%, while Edmonton house prices are expected to increase by 0.6%.

Vancouver: Low market activity resulted in modest price declines across all three housing types ranging from 1.3% to 3.6%. At the end of 2013, prices are forecast to further decline 3%.