A rush to buy, sparked by expectations of higher mortgage rates and the pending harmonized sales tax in Ontario and British Columbia, is fueling an ever sharper rebound in the real estate market.

Already an extraordinary turnaround story in the wake of the recession, new home construction is picking up and resale prices are now forecast to hit fresh records this year. In some areas, such as Vancouver, the country’s richest market, prices are now at the point where detached homes are out of reach for many home buyers – even with extremely low interest rates.

Home prices in Canada will surge to new highs this year, specially in the Western provinces and Quebec, according to a new forecast by the Canadian Real Estate Association (CREA) on Monday, that predicts that the price of the average home in Canada will reach $337,500, up more than 5 per cent from last year, while sales activity will also reach a record high.

According to experts from the real estate industry, demand is being driven by both people wanting to purchase before interest rates increase and by those who want to purchase before the HST affects the cost of new homes. Overseas buyers looking for an investment property are also playing an important part in this phenomenal rebound.

However, most analysts don’t see a housing bubble in Canada for the time being. In the Bank of Canada’s view,

“it is premature to talk about a bubble in Canadian housing markets. Recent house price increases do not appear to be out of line with the underlying supply/demand fundamentals. Moreover, with housing starts below long-term demographic requirements, inventories are still declining. It is likely, though, that a significant part of the surge in housing sector activity is associated with temporary factors — notably the historically low borrowing costs, as well as pent-up and pulled-forward demand — which cannot continue to drive increases in house prices and activity. Thus, we see the housing market as requiring vigilance, but not alarm.”

Each month, The Canadian Real Estate Association compiles the statistics of existing homes and properties sold through the Multiple Listing Service. This provides an overview of the existing housing market in Canada, and tracks market trends for prices and properties sold.

These statements fall in line with those of Mark Carney, Bank of Canada governor, who during his reply to audience questions at a speech in Winnipeg at the beginning of this month, assured that he does not see the need for structural change in Canada’s mortgage market.

“The Canadian mortgage market has functioned I think exceptionally well during the course of the last decade … we’ve seen the strength of the system of mortgage insurance and it’s provided an important funding avenue for the banks as well. It’s allowed our housing market to weather the storm,”

“I must say we don’t see a need for structural change in the mortgage market.”

Carney also said he would not describe current housing market strength as a housing bubble.

“We had expected strength in the housing market given where monetary policy was. We’ve seen it. We are following it closely but we would not characterize the current state of the housing market in those terms.”

Related posts:

1. The Realtors Association of Edmonton predicts steady growth in 2010 Edmonton’s housing markets will grow in 2010, but don’t expect the runaway sales and prices of the housing boom, industry representatives said at a realtors’ forum Wednesday. The resale market will go through 2010 the same way it left 2009 — stable and steady, Larry Westergard, president of the Realtors Association of Edmonton, said at [...]...
2. Bank of Canada won’t raise interest rates to cool housing The Bank of Canada won’t raise interest rates to cool the country’s hot housing market, a spokesman said Monday, preferring to leave any tinkering to the country’s Finance Minister. “Some observers – those who see a housing bubble forming – have said that since low interest rates have stimulated housing market activity, the Bank should [...]...
3. Home prices across Toronto area bounced back in 2009 West-end Bloordale Village and east-end Riverdale joined Willowdale and the Bridle Path in the north with some of the biggest jumps, according to year-end numbers released by the Toronto Real Estate Board. The Greater Toronto Area saw a total of 87,308 transactions, a 17% increase over 2008 — although below the record 93,193 transactions in [...]...
4. Real Estate market expected to remain strong in first half of 2010 David Paddon, THE CANADIAN PRESS Canada’s residential real estate market is expected to remain unusually strong through the first half of this year after a strong finish to 2009, according to a survey published Thursday by Royal LePage. The Royal LePage analysis is consistent with other recent reports on the state of the Canadian real [...]...
5. Housing sales prices surge in August  Great news in this article.SUSAN KRASHINSKY From Wednesday’s Globe and Mail Last updated on Wednesday, Sep. 16, 2009 07:16AM EDT  At a time when the economy is still bruised from the recession, housing sales are riding high. Sales of existing homes in August grew by a brisk 18.5 per cent from a year ago, data [...]...