JOHN PARTRIDGE

January 7, 2009

Average Canadian house prices will fall by another 3 per cent in 2009, but the drop will add up to a "correction," not the sort of "crash" that has crushed the U.S. market, real estate brokerage Royal LePage Real Estate Services said yesterday.

Nationally, the average house price will fall to $295,000, from a projected level of $304,000 for 2008, the Toronto-based firm forecast. This follows a 1.1-per-cent dip last year from $307,265 in 2007.

Royal LePage also is betting that the number of houses sold across the country this year will fall by 3.5 per cent to 416,000, although it expects to see both price and activity gains in several markets, including Regina and Winnipeg, where prices remain below the national average.

But price increases of 6 per cent and 4 per cent that the firm is forecasting for the two prairie cities - bringing the average up to $243,300 and $204,900, respectively - will be a mere shadow of the 38.6-per-cent and 20.5-per-cent gains they saw last year.

As well, Royal LePage is forecasting that more Canadians will lose their homes, as foreclosure rates increase, but that this increase will remain "very limited," especially compared with the U.S. experience.

It argued in a news release that Canada's "relatively insignificant" subprime mortgage market means only a "low number" of Canadians are carrying "very risky mortgages," and that, as a result, the foreclosure rate will not climb enough to have an impact on prices and sales activity.

However, The Globe and Mail reported last month that Canadian banks, trust companies, credit unions and other lenders issued an estimated $56-billion in 40-year mortgages with minimal down payments - seen by critics as being as risky as subprime loans - in the first six months of 2008. Banking and insurance sources told the newspaper that this represented more than half the total new mortgages advanced by the lenders during this period.

As well, David Wolf, Merrill Lynch's head Canadian economist and strategist, warned in September that too much leverage in Canadian households could be a "tipping point" for a U.S.-style crash, while BMO Nesbitt Burns Inc. deputy chief economist Douglas Porter said Canada's housing market could "take it on the chin" if the U.S. recession proves to be a deep one.

Still, other economists, such as real estate specialist Adrienne Warren at Bank of Nova Scotia and Benjamin Tal at Canadian Imperial Bank of Commerce, share similar views to Royal LePage. Phil Soper, the firm's chief executive officer, reiterated in the news release yesterday that it sees no great cause for alarm