A record number of Canadians own their homes as low interest rates have improved affordability even as prices hit new highs, bank economists said.
However, the factors driving home ownership - affordability and the relative cost of owning versus renting - "may be turning," a Bank of Nova Scotia report said.
RBC Economics observed in a separate report that 2004 set records for the number of home sales and average prices, was the biggest year for housing construction since 1987 and was the third straight year of double-digit percentage increases in average selling prices.
But in another report, Canada Mortgage and Housing Corp. said February's housing starts totalled 214,900 units at a seasonally adjusted annualized rate - up 5.3 per cent from frigid January levels but down from 240,000 during the final three months of 2004 and below the consensus economist expectation of 220,000 to 225,000.
Construction starts on single-family homes declined 2.4 per cent month-over-month and now have fallen in four of the past five months to 9.1 per cent below a year ago.
"This is yet another recent sign that housing activity may be cresting in Canada," commented Sherry Cooper, chief economist at BMO Nesbitt Burns.
Still, Cooper added, "the sector as a whole will remain at quite healthy levels, with low, low mortgage rates providing ongoing support."
Phil Soper, president of Royal LePage Real Estate Services, told a Bank of Nova Scotia media presentation that he expects the number of home sales nationally to decline about one per cent this year from 2004, with average price increases slowing to 4.5 per cent - less than half the "breakneck pace of price appreciation" of the past three years.
The Scotiabank outlook said low mortgage rates will maintain affordability, "but some erosion is already under way due to the rise in home prices."
Scotiabank estimates 67 per cent of Canadian homes now are owner-occupied, up from 65.8 per cent in 2001, meaning almost half a million households have bought homes in that period.
Part of this growth has been driven by demographics, as the Baby Boom generation has aged into its prime home-owning years, the bank noted.
But that's only one factor, added Scotiabank chief economist Warren Jestin. The others include rising disposable incomes, strong job growth, easier access to mortgages, and interest rates that have been and are likely to remain "near lifetime lows," Jestin said.
He added at the media presentation that there is no sign of an unsustainable bubble in Canadian house prices.
"In a very low-inflation environment, you're going to have some things that are moving up faster, some things that are moving up a bit slower, and I think the economic fundamentals under the housing market are still pretty good."
However, the Scotiabank report said the faster rise of home prices, compared with rents, is widening the difference in cost between owning and renting.
It estimates the difference between monthly mortgage payments on a typical home and the average rent on a two-bedroom apartment was $300 in 2004, only half the $600 gap in 1990 but up from a low of just over $100 in 1998.
Nonetheless, the housing market "remains healthy despite steadily rising house prices, thanks to good overall housing affordability and lower borrowing rates," said RBC economist Allan Seychuk.