No 'hard landing' for Canadian house prices, says Moody's Analytics

Expect slower price growth in the Canadian real estate market over the next five years, but no "significant declines" at the national level,Moody's Analyitics said in new report released Tuesday.

"While there has been much concern in Canada about an overheating housing market, we expect national house prices to avoid a significant correction," Moody's economistAndres Carbacho-Burgos said.

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According to the report,Canadian detached single family house prices are expected toincrease by nine per cent this year, and by2.9 per cent annuallyover the next five years. Meanwhile, condominium prices are forecast to grow by4.6 per centthis year, and 2.2 per centper annum over the next five years.

Moody's does caution that some metropolitan areas will see "modest" near-term price declines.Prices in Edmonton are expected to trend slightly lower, despite an expected rise in oil prices.Saskatchewan and Newfoundland housing markets are in for "a rough two years," Moody's said, citing a combination of overvaluation and slow projected economic growth.

In the wake of the introduction of a15-per-cent tax on property purchases by foreign buyers in the Vancouver area and a new tax on vacant properties city,Moody's said it expects prices fordetached single-family homes in Vancouver willdecline by less than three per cent next year.

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However, Moody's cautioned that there are "downside risks" of even bigger declines because it judges that detached single-family homes in the Vancouvermarket are more than 60 per cent overvalued relative to the long-term price trend.

Meanwhile, prices for detached single-family homes in theToronto markets areovervaluedby nearly 30 per cent, Moody's said.

"Such high overvaluation does not necessarily mean that prices will decline, given that the Toronto market is also supported by strong demand from foreign buyers," Carbacho-Burgos said.

The Moody's report comes a day after the head of Canada Mortgage and Housing Corp. said the federal agency will issue its first "red" warning for the national housing market later this month. CMHC said it has recently observed spillover effects from high-pricedVancouver and Toronto into nearby markets.

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New rules aimed at taking some of the steam out of the housing market also kicked in on Monday, including stress tests for all new mortgages.

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