TORONTO - Canada's real estate market will grow in the rest of the year as Canadians undeterred by recent turmoil in global stock markets will continue to be drawn in by low mortgage interest rates, economists say.
The economists made the comments as the Canadian Real Estate Association revised its forecast for national home resales up for the rest of the year, citing stronger than expected sales and higher prices in the second quarter.
The association said sales should grow less than one per cent this year, compared with 2010, up from an earlier forecast that called for a one per cent dip in sales.
CIBC deputy chief economist Benjamin Tal said the stock market uncertainty due to the European debt crisis and the United States credit downgrade is actually helping boost activity in Canada's real estate market.
He said that bad economic news abroad tends to keep Canadian interest rates low, with economists predicting the Bank of Canada will leave rates untouched until at least next year.
"The uncertainty globally is really benefiting mortgage holders because it's really postponing the increase in interest rates in Canada," he said, explaining that when the stock market turns volatile, real estate becomes an attractive investment because of its security.
"Many people can use this opportunity to look into extremely low mortgage rates, so again the misery of other people elsewhere is helping Canadian home buyers."
Sonya Gulati, an economist at TD Economics said the bank is anticipating that sales will be a bit more subdued in the short term, but buyers, especially first timers and immigrants won't likely be deterred in the longer term as interest rates stay low.
"People may be waiting to see whether or not they want to purchase homes, see if things turn for the better. It really has been a roller coaster for the last little while so we anticipate a little bit more subdued activity in August and September."
"(The stock market) will be a factor in their decision making process, but at the end of the day one of the key things for people is the interest rate and mortgage rates are still very low and they may actually want to enter the market for that reason despite the uncertainty out there."
Overall, CREA said Tuesday that 450,800 housing units are expected to be sold across Canada under its multiple listing service in 2011, and the average selling price will be slightly higher.
About 90 per cent of resales in Canada are listed on MLS.
On a regional basis, British Columbia's 2011 sales forecast has been revised slightly higher as home sales in the province appear to have bottomed out soon than predicted, while stronger than expected activity in Ontario is expected to offset slightly softer than anticipated demand in Quebec, Manitoba and Newfoundland and Labrador.
Meanwhile, the association said sales expectations for 2012 were revised downward to 447,000 units, roughly on par with the 10-year average, CREA said.
"While there had been some talk of potential interest rate increases. That hasn't happened," said CREA president Gary Morse.
"In fact, rates have actually come down and are now expected to remain low for the remainder of this year and into 2012. It's a great opportunity to purchase a property with financing at very favourable rates."
The national average home price is expected to rise 7.2 per cent in 2011, to $363,500, reflecting increases in the second quarter in Vancouver and acceleration in other parts of the country, particularly Toronto.
"These two markets exert an outsized influence on the national average due to their relatively high level of activity and average price," CREA said.
CREA said the average price is expected to moderate in the second half of the year, returning to normal following a heavily skewed start to the year due to a surge in multimillion-dollar sales in selected areas of Vancouver and a higher than normal share of overall sales in more expensive markets.
Additional new listings should also result in a more balanced resale housing market in most provinces, with the national average price forecast to stabilize in 2012.