Canada house prices to pick up from stand-still but risks aplenty: Reuters poll

'For Sale' sign is pictured in the front yard of a house in Toronto

By Mumal Rathore

BENGALURU (Reuters) - Canadian house prices will be flat this year, but will pick up in 2020, driven by lower mortgage rates and solid domestic economic conditions, according to economists and property market analysts polled by Reuters.

Still, the latest survey clearly shows boom times are over for Canada's property market, which has stabilized and is trading more like its global peers with modest single-digit price rises despite very low borrowing costs.

The latest poll of 18 contributors taken Aug. 13-21, including all the big five Canadian banks, showed average national house prices will rise 1.8% next year after a flat 2019.

Notably, all but one of the common contributors from the May poll either upgraded or kept their house price outlook for next year unchanged.

"You still have a growing economy, a tight labor market, strong population growth in Canada, especially in the large urban areas. So those factors are going to take over going forward," said Robert Hogue, senior economist at RBC.

"There are views that the factors are in place for continued recovery, but then again it will be a slow recovery, not a sharp snapback," he added.

While Canadian home prices rose for the third consecutive time in July on a monthly basis, the annual gain was the smallest since November 2009. That is a far cry from the double-digit price rises from just a few years ago.

In Toronto, Canada's financial capital and largest city, house prices were expected to rise 2.0% this year, an upgrade from 1.3% predicted three months ago. They are forecast to keep rising at around that rate through 2021.

But house prices in Vancouver will not start to modestly recover until next year, with the median from poll participants expecting a decline of 5.5% in 2019 compared to a 4% decline predicted in the May survey.

While economists were split whether demand will increase, remain unchanged or decrease by year-end in Vancouver, a majority of them said it will increase in Toronto.

Nearly three-fourths of contributors - 13 of 17 - said demand for national housing will increase over the same period. Three respondents do not see any change, while only one expects it to decline.

"There is still a fundamental demand for housing, even if the GDP numbers look a bit weaker from things like exports and manufacturing," said Robert Kavcic, senior economist at BMO Capital Markets.

However, the housing market is not expected to get much additional support from the Bank of Canada, which is widely forecast to keep its key interest rate on hold at least until next year.

That is a divergence from the easing policy opted by other major central banks, including the U.S. Federal Reserve, which is forecast to cut rates again as early as next month after a quarter-point cut in late July.

Over half the economists - 10 of 18 - who answered an additional question said the BoC's divergence from its peers will have no impact on the housing market. Six said it will be positive, while two expect it to have a negative impact.

About 60% of economists said the risks to their outlook were skewed more to the downside.

"The caution on the outlook is that there are some real external risks on the Canadian economy," said James Marple, senior economist at TD.

"That could lead to slower growth and have an impact on financial conditions and consumer confidence, which may weigh on the housing market."

(Reporting and polling by Mumal Rathore; Additional reporting by Indradip Ghosh; Editing by Ross Finley and Jonathan Oatis)