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Canadians confused over real estate market

Liam Lahey

Despite highly-competitive interest rates, Canadians are backing away from the real estate market. And it's no wonder. Consumers are bombarded with contradictory economic reports about the fragility of the housing market in the U.S., the blistering-hot Canadian real estate bubble -- is it even a bubble? -- and varying interest rates that seem to change on a dime according to the whims of the big-six Canadian banks.

These conflicting messages are playing out in housing market sentiment, suggests an annual Royal Bank of Canada survey.

According to the "19th Annual RBC Homeownership Poll", an increasing majority of Canadians believe that now is the time to get into the housing market (59 per cent, up four percentage points from last year), instead of waiting until next year (41 per cent).

And yet, more Canadians say they are unlikely to buy within the next two years (73 per cent, up two percentage points), even as confidence in homeownership is on the rise.

"What we're seeing here is consumers are taking a smart approach to buying a home. Canadians are recognizing housing is a good investment (88 per cent of respondents say so) and with the low interest rate environment and affordability at reasonable levels, they're telling us that now's a good time to buy," says Claude DeMone, director, Strategy and Portfolio, Home Equity Financing at RBC in Toronto.

"However, they're unlikely to do so within the next two years. I think that's people taking a smart approach, looking at their budget, and ensuring they have the resources to buy a home they can afford and that they can keep their mortgage payments are kept in line going forward."

The RBC poll also finds that after four years of sentiment favouring a buyer's market, the tide appears to be turning. More Canadians surveyed this year feel the current housing market is a seller's market, in which sellers have the advantage because the number of buyers exceeds the number of homes available (27 per cent, up from 20 per cent in 2011).

Nearly four-in-10 Canadians say it is a buyer's market (38 per cent, down two percentage points from a year ago). Fewer believe that the housing market is balanced (36 per cent, down from 40 per cent a year ago).

"With the low interest rates we've been seeing recently, it's a great story for consumers," he says. "If you're buying a home, this is a great time to get into the market but the right thing to do is to consider your budget and determine if you're ready. That's where some of the conflicting opinions on the market is: it's the difference between desire and ability."

Canadian economists have fretted about rising housing prices as household debt levels have soared. The ratio of debt to personal disposable income hit a record 151.9 per cent last year.

A Royal LePage House Price Survey shows strong year-over-year price gains for all housing types.

In Toronto, the numbers show it is most definitely a seller's market with prices steaduly on the climb in the first quarter of 2012:

  • Standard two-storey homes posted the largest price increases rising 7.5 per cent year-over-year to $645,467
  • Detached bungalows rose 5.5 per cent year-over-year to $544,450
  • Standard condominiums witnessed an increase of 3.5 per cent to $353,355 compared to the same period last year

The same holds true for Vancouver's hot housing market:

  • Standard two-storey homes saw the largest year-over-year price increases, rising 9.1 per cent to $1,182,250
  • Detached bungalows posted a similar 9.0 per cent year-over-year increase rising to $1,068,500
  • Standard condominiums rose a modest 0.5 per cent year-over-year to $510,000.

"Our housing market is being pulled in opposite directions by opposing economic forces," Phil Soper, president and chief executive of Royal LePage Real Estate Services, said in a statement.

"On one hand, there is the rapidly strengthening U.S. economy, increasing Canadian consumer confidence and what can only be called a national mortgage sale encouraging activity and bidding up home prices. On the other, we have signs of over-shooting values and strained affordability in our largest cities. We are likely to see much more modest price appreciation as the year unfolds."