Canadian property market now well balanced, economists find

The property market in Canada is well balanced and prices should rise in line with general inflation, according to economists.

The market has moved from a strong sellers market but it is unlikely to suffer a serious downturn, economists from Scotia Economics say in a new report.

But there are significant regional differences. Former hot locations like Calgary, Saskatoon and Vancouver are now favouring buyers.

One worrying trend is overbuilding. 'A widening gap between new construction and household formation is evident across all provinces, and has contributed to the gradual rise in unsold new homes in recent years,' the report says.

The housing market in Alberta and in the West of the country in general, has been little bit ahead of the rest of the country.

The Scotia Economics report predicts that the slump in the US shows no signs of abating despite an over 50% drop in housing starts from their early 2006 peak. A massive over supply of unsold homes south of the border will keep downward pressure on both prices and construction, the report concludes.

The latest figures from the Canadian Real Estate Association show a similar pattern. Last month the average price of a resale home in Canada fell by 3.6%, continuing a decline that started in June when prices lost ground for the first time in more than nine years.

Experts say that the Canadian government's recent decision to crack down on mortgage lending rules has likely fed the cooling of the real estate market. But this should also help Canada avoid a US style bubble.