Even the stronger loonie hasn’t been able to overcome obstacles that include import tariffs ranging as high as 18 per cent, a number of higher fixed costs and, admittedly, the fact that retailers in Canada can simply get away with charging more.

“The people who should win from a stronger Canadian dollar are consumers,” said BMO’s deputy chief economist, Douglas Porter. “They don’t feel that way.”

“We have been above parity for basically all of 2011 and when you get to those levels it makes the price comparisons very straightforward and it’s frustrating for consumers,” said Porter, who has been tracking price differences between the two countries since the loonie soared in 2007.

Hockey parents have noticed that equipment is cheaper in the United States and some are finding ways to bring it back to Canada unnoticed.

“It depends on the equipment, but it can vary from 20 per cent to 45 per cent cheaper in the U.S.,” said one parent. “When you get into the high-quality products, the price difference is higher.”

Some U.S. retailers such as Hollister, the California surfer clothes chain, are upfront about advertising their two-tiered policy, listing both Canadian and U.S. prices on their price tags.

Others, like American fashion retailer J. Crew, charge an average of about 15 per cent more in Canada compared with its U.S. stores and website. A Senate committee plans to study the price gap, a process that will take time and could run into 2012, which would miss the holiday shopping season.

Tariffs on most goods between Canada, the United States and Mexico were phased out under trade deals signed in the late 1980s and early 1990s. But there are still import duties paid on some goods not covered by these trade agreements as well as a range of clothing and sporting goods that come into Canada from Asia, Europe, South America and other countries.

There’s also the cost of doing business in Canada, which adds to the price of goods — from bilingual labelling to transportation, payroll taxes and real estate, said marketing professor Ken Wong of Queen’s University in Kingston, Ont.

“The other part of it is quite simply what the market will bear,” Wong added.

“So, to a certain extent, there is an element of artificial inflation of some Canadian prices. From a consumer perspective, you could say it is gouging. From a manufacturer’s perspective, I would guess you see it as smart business.”

Cotton clothing such as T-shirts and track suits, women’s and girl’s ski jackets and overcoats, pillows, cotton bras, towels and bed linen face import duties of between 14 and 18 per cent, according to the Retail Council of Canada.

These items aren’t out of the ordinary, said Anne Kothawala, a spokeswoman for the council, which would like to see the tariffs removed.

“Clothing and sporting equipment are the particularly egregious areas,” she said.

Federal Finance Minister Jim Flaherty has conceded that removing such tariffs might be one way the government could help, but he wants the Senate committee to take a thorough look at the whole issue.

A bright spot for Canadians is consumer electronics, such as TVs and laptops, because the price difference between the two countries usually isn’t significant, according to Christopher Bennett, spokesman for Best Buy Canada and Future Shop.

“It could be $50 more or it could be $50 less in Canada or the U.S.,” Bennett said.

Technology is getting cheaper and being mass produced and is resulting in ever lower prices, he said from Vancouver.

“The up and downs every month of the dollar in the U.S. or Canada won’t drive your excitement,” Bennett said of consumers buying consumer electronics.

Meanwhile, Kothawala said there was “no question” Canadians would see a reduction in prices if import tariffs were removed.

“However, because of the time lag in the supply chain and the time it takes to place an order for products, that will not be able to happen overnight,” she said.

Kothawala also noted that Canada retailers are typically charged more by multinational suppliers than their U.S. counterparts, making goods more expensive.

And, she added that Canadians shouldn’t expect to see absolute parity on consumer goods even if tariffs are removed.

“Our fixed costs are in Canadian dollars — they’re not coming down because the Canadian dollar has gone up,” she said.

The Re/Max First-Time Buyers Report, highlighting trends and developments in nineteen major Canadian centres, found that low interest rates and balanced market conditions have provided significant impetus in 2011, particularly at lower price points.

“Despite homeownership rates approaching 70 per cent, there is clearly room for growth as entry-level buyers make their moves from coast-to-coast, undeterred by higher housing values and changes to lending criteria” says Michael Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada.

“Many purchasers intent on realizing homeownership are scaling back on expectations or are willing to sacrifice location, quality and/or size to make their dream a reality – not unlike generations before them.”

Inventory levels, while tight in several larger centres, are more balanced overall, giving first-time buyers a good selection of housing product from which to choose. A typical first-time home buyer’s home can be found in Norwood, Ontario. Priced at $189,900 with 3 bedrooms, a fenced-in back yard, a large finished basement with family room.  Being in walking distance to schools and shops, all perfect for a young growing family.  Norwood is located within a 30 minute commute to Peterborough or an hour from the Greater Toronto Area.

“With the Canadian economy on firmer footing overall, residential real estate is well-positioned moving into the traditionally busy spring market,” says Elton Ash, Regional Executive Vice President, Re/Max of Western Canada. “Consumer confidence is climbing in conjunction with economic performance, and concerns over a secondary recession fade with each passing day. The mood is cautiously optimistic, as first-time buyers enter the market.”

As prices escalate, first-time buyers are indeed spending more—some out of necessity, but others are simply in a position to do so. Unlike in years past—a greater percentage of today’s first-time buyer pool is comprised of dual-income, college or university-educated couples with solid earnings. They’re spending close to average price or slightly more to secure—in most cases—a better location or a home that will grow with them. Yet, the fact remains that those on a tighter budget can get in for considerably less, with reasonable choices in every major market across the country. While some may feel discouraged by eroding affordability levels, the underlying confidence in the concept of homeownership is rising.

Source: Re/Max Ontario-Atlantic Canada

Somewhat surprisingly, there is little or no difference among age groups, educations levels or urban and rural populations on this question. At present, approximately 85 per cent of internet users in Canada get news online at least once a month.

Key findings:

• Ninety-two per cent of Canadians who get news online say they would find another free site if their favourite news sites started charging for content.
• Eighty-one per cent say they definitely will not pay to continue reading their favourite online news site.
• Canadians are more willing to pay for music, games, e-books and even ringtones than they are to pay for news but even in these categories, the numbers are not high
• The vast majority of consumers is unwilling to accept fees but up to 30 per cent indicate they would definitely or probably pay, if there were no other choice
• Charges are most acceptable for breaking news (28 %) or hard news (22 %). Nineteen per cent indicate they would pay for international news and 16 per cent would purchase feature and analytical news.

Read the full survey release about consumer reaction to the use of newspaper paywalls from the CMRC.

Read our FREE online magazine here

“While we do not expect a significant correction nationwide, the risk of such would increase, especially in some regions, if prices were to continue to outrun incomes or if interest rates were to increase rapidly,” economist Sal Guatieri says.

He notes that after slowing last summer, Canadian home sales rebounded in the fall and house prices have kept rising.

On average, home prices rose five per cent in the past year to January, while in Vancouver they rocketed 20 per cent. On average, home prices are 10 per cent higher now than they were before the recession, when they were at an all-time high. The problem is that the value of homes have increased much faster than incomes.

The bank says average home resale prices compared with personal incomes are 14 per cent above the long-run trend, up from last summer, although still below the 21 per cent peak that preceded the 1989 crash. But that is not the case in all markets. Five provinces are currently in the danger zone, led by Saskatchewan, where the ratio is 39 per cent above historic norms.

Also well-above the long-run levels is Newfoundland, 34 per cent higher; British Columbia and Manitoba, 31 per cent, and Quebec, 23 per cent above.

By comparison, in Ontario the price-to-income ratio is only 10 per cent higher than historic norms, suggesting prices are moderately overvalued but not in bubble territory. What’s made this possible have been historically low interest rates which have allowed Canadians to carry bigger mortgages. As a result, mortgage payments for the typical owner consume 35 per cent of disposable household income, about the same as the 23-year average of 34 per cent.

The bank says there should be no major correction if incomes increase faster than home prices in the future, as expected. It says sales are expected to cool and prices stabilize this year in response to higher interest rates and tighter mortgage rules that go into effect later this month.

“The risk of a correction would increase, however, if prices rose alongside rates and incomes,” the report cautions.

If prices don’t stabilize, the report says it would put the Bank of Canada in a tight spot. It risks creating a housing bubble if it keeps rates super-low too long, or could precipitate a crash if it hikes rates too quickly.

The Bank of Montreal report is the latest to throw up caution flags about the seemingly unstoppable Canadian housing market. Last month, Capital Economics warned the Canadian housing bubble was poised to burst, needing only the pin-prick of rising interest rates to set off the collapse. The economic consulting firm noted that by historical standards, almost all the key indicators around housing were at historic highs. It predicted prices could fall 25-35 per cent in the next three years once interest rates and mortgage upkeep costs begin rising.

Still, most private sector analysts see a soft landing rather than a crash, in part because the Bank of Canada is unlikely to raise rates sharply or quickly.

The change would add 100 per cent of condo fees to the expenses considered when a buyer is applying for a mortgage. Currently, only 50 per cent of the fee is considered. Toronto realtor Brad Lamb says the move is going to push a lot of people out of the market.

“A lot of people are going to get locked out of buying a condo, which, in most cities in Canada, is the most affordable option for housing,” he said. “It’s a terrible idea.”

The maximum length of a mortgage could also come down from 35 years to 30.

“You’re talking $150 to $200 more per month, which works out to $40,000 in purchase price,” Lamb said.

Craig Alexander with TD Bank says the new rules might not take people out of the market completely.

“It really wouldn’t take people out of the market. It would mean people would end up taking a lower mortgage and buying a lower-priced house,” he said.

Prime Minister Stephen Harper acknowledged the rumours of the new rules.

“The government remains concerned about growth and the level of household debt, and will look at taking prudent steps to moderate that growth,” he told reporters. “We’ve seen some moderation recently.”

There is also speculation the government might increase the minimum downpayment required. Currently it is five per cent.

Actual (not seasonally adjusted) national sales activity via the Multiple Listing Service^® (MLS^®) Systems of Canadian real estate Boards was down 14.4 per cent on a year-over-year basis in December 2010, which reflects record level sales for the month of December in 2009.  Activity in December 2010 ran slightly ahead of the ten year average for the month

The national trend for monthly sales remained stable in December, with seasonally adjusted sales activity having edged down by less than a percentage point from the previous month.  Led by Calgary, Winnipeg, and Hamilton-Burlington, seasonally adjusted sales activity was up month-to-month in half of local markets. Toronto, Vancouver, and Montreal were among the markets that posted a small month-over-month decline in December.

“Overall sales activity has improved in recent months, but the upturn has been uneven among local markets,” said Georges Pahud, CREA President. “Housing market trends often differ due to a number of local factors, so buyers and sellers should consult their local  expert to understand how trends are shaping up in their market.”

National home sales activity improved steadily over the second half of 2010, with seasonally adjusted sales up 18.3 per cent in December compared to the recent low reached in July. As a result, seasonally adjusted activity in the fourth quarter of 2010 rose 12.1 per cent from third quarter levels, and was up less than a percentage point compared to second quarter activity.

“The hand off to 2011 for sales activity in the fourth quarter suggests that the continuation of low interest rates will further support the housing market,” said Gregory Klump, CREA’s Chief Economist. “Sales may be starting to plateau in some of Canada’s most active and expensive housing markets.  Combined with a pickup in new listings and further interest rate increases, the stage is being set for smaller price gains and a further deceleration in the growth of mortgage debt.”

Some 447,010 homes traded hands over Canadian MLS^® Systems in 2010, down 3.9 per cent from 2009. Annual sales activity was higher than CREA had forecast previously due to stronger than projected sales activity in the fourth quarter.

The number of new residential listings on Canadian MLS^® Systems held steady in December, rising by less than one percentage point on a seasonally adjusted basis. New listings remain 14.2 per cent below the recent peak reached in April 2010.

The housing market remained in balanced territory on a national basis in December, with sales as a percentage of new listings amounting to 55.2 per cent. Just over half of local markets in Canada were in balanced territory in December.

Three-quarters of the remaining local markets are sellers’ markets.  “With activity having returned to healthy levels and a firm floor under prices, many sellers who shied away from the market heading into the summer are expected to list their properties heading into the spring,” said Klump. “Sales in the months ahead are not expected to continue trending upward as steeply as they have in recent months, so an increase in new listings may return many sellers markets to balanced territory.”

The number of months of inventory represents the number of months it would take to sell current inventories at the current rate of sales activity, and can be used to gauge the balance between housing supply and demand. The seasonally adjusted number of months of inventory stood at 5.8 months at the end of December on a national basis. This was unchanged from November, and remains 1.4 months below where it was in July.

The number of months of inventory in December rose compared to November levels in British Columbia, Saskatchewan, Quebec, New Brunswick and Nova Scotia, and was down from the previous month in Alberta, Manitoba, Ontario and Prince Edward Island.

The national average price for homes sold in December 2010 was $344,551, up two per cent from the same month last year, and stable compared to average price in October and November. About 60 per cent of local markets recorded year-over-year gains in December. Average price was down on a year-over-year basis in 30 per cent of local markets, and remained stable in the remainder.

The annual average price for homes sold via Canadian MLS^® Systems rose 5.8 per cent to $339,030.  Much of the increase reflects compositional factors within and across housing markets that caused average price to be skewed downward in 2009.

Canada's property market performed well during 2010

But while the Canadian home market was among the best performing, it was also one of the most volatile, the report notes. Home sales were unusually active during the winter and spring, but dropped off substantially during the summer, according to the report. It says that over the fall, sales returned to a more typical level.

“We are neither overtly optimistic nor pessimistic regarding the outlook for 2011,” said Adrienne Warren, a senior economist with Scotia Economics.

She expects interest rates to remain low well into 2011, providing an inducement for first-time and move-up buyers, which will keep sales at a decent level. However modest employment and income growth is expected to restrain the market somewhat.

“Overall, we anticipate a fairly lacklustre year for residential housing, with modestly higher sales volumes and flat inflation-adjusted prices,” Warren said. “The bigger risk likely awaits in 2012, when more significant interest rate increases, combined with record-high home prices, will notably strain affordability.”

Australia had the hottest real estate market in 2010, according to the report, with home prices rising nearly 10 per cent over the year.

Demand there was supported by low unemployment and a tight housing supply.

“While Australia’s close trade ties with Asia and resource wealth will continue to underpin a solid pace of domestic activity, higher interest rates will worsen already strained affordability,” Warren said.

France, Sweden, Switzerland and the U.K. also recorded growth in their housing markets.

Germany and the United States were flat in 2010, even as the U.S. market struggled to rebound from a 30 per cent price correction over the previous four years. Ireland, Italy, Japan and Spain all recorded price drops. Ireland’s market was the worst among the 12 nations tracked. It posted double-digit price declines in 2010. Weak demand, oversupply and high unemployment are expected to keep Ireland’s housing market in decline well into 2011.

The Housing Market Outlook 2011, examining trends and developments in 26 cities across the country, found that home-buying activity in 2010 fell short of 2009 levels.  This was the case in Montréal and Québec City, where sales fell by two and three per cent respectively.  Housing values, however, continued to climb, with virtually all areas reporting an upswing in average price, ranging from just under one per cent to 15 per cent this year.  Québec City was among the markets that posted double-digit gains in price at 15 per cent, while Montréal reported a solid seven per cent increase.  Lower inventory levels in many markets offset the effects of diminished demand, propping-up price in almost every instance.  Kitchener-Waterloo and St. John’s tied Québec City for the greatest increases in average price this year, while Eastern Canadian markets including Hamilton-Burlington, Sudbury, Windsor, Moncton and Prince Edward Island were the only markets that bucked the downward trending in home sales in 2010.

By year-end, approximately 441,000 homes are expected to change hands nationally, a five per cent decline from the 465,251 sales reported in 2009.  Housing values are forecast to continue to climb, up an estimated seven per cent to $340,000, compared with $320,333 one year earlier.

“Several catalysts drove sales beyond typical volumes in early 2010,” says Sylvain Dansereau, Executive Vice President, RE/MAX Quebec.  “In Québec, most prominent was the threat of higher interest rates and tighter lending policies.  While sales eased considerably in the second half once the stimulus was removed, stable conditions now prevail heading into 2011.  Low interest rates and improving consumer confidence levels should fuel home-buying activity at all price points next year.  Yet, overall gains will be more muted—a welcome reprieve for purchasers.”

Greater stability is expected to characterize the markets in 2011, with Canadian housing sales predicted to mirror 2010 levels at 441,000 next year, while average price is forecast to escalate three per cent to $350,000 by year-end 2011.

“In terms of resale housing activity, what many are talking about as the new normal is actually a return to the traditional real estate cycle,” says Michael Polzler, Executive Vice President, Regional Director, RE/MAX Ontario-Atlantic Canada.  “The past decade was truly unprecedented—never before have we experienced a run up that was as strong or lasted as long.   As we have digressed from the typical pattern, people have forgotten what the usual healthy cycle looks like, but all the hallmarks are there.  Ample inventory levels, steady demand, and moderate growth, both in terms of sales and prices, will characterize the market in 2011.  While the pace may appear lackluster in comparison to what we’ve grown accustomed to, it underscores the principles of real estate 101: The market is cyclical.  All boats rise and fall with the tide.”

Markets in British Columbia are forecast to lead the country in terms of percentage increases in sales activity next year, with Greater Vancouver expected to climb 10 per cent, followed by Victoria at eight per cent and Kelowna at six per cent.   After a prolonged period of economic hardship, Windsor is once again on track for growth, with residential home sales predicted to climb five per cent.

Almost all markets are reporting an anticipated increase in housing values next year, with St. John’s in Newfoundland-Labrador in front with an estimated eight per cent hike in average price in 2011.  The value of homes in Greater Vancouver, Kelowna, Regina, Saskatoon, London-St. Thomas, Ottawa, Sudbury and Greater Montreal is also predicted to climb five per cent.

“Looking forward, we see steady improvement in provincial and local economies – which will bode well for housing markets across the board,” says Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada.  “The relentless drive in the market reminiscent of years past will be gone and instead, we can expect to see more normal, balanced market conditions, with buyers maintaining a slight edge.”

In the meantime, a number of factors will continue to support sustained sales and price growth in the months and years ahead:

Immigration will remain a serious force stimulating demand, particularly given the penchant for homeownership among today’s new Canadians. While the formation of new households used to take an average of five years, a growing number of newcomers arrive skilled, financially secure, and ready to make their home-buying moves.  It is estimated that Canada will average 250,000 new immigrants annually.

• Land scarcity, intensification, urban renewal, infill and renovation will continue to drive up values—regardless of supply and demand—in major metropolitan areas.  The Canadian housing stock is ever-evolving, particularly in the central core of each city.  With average price pushing closer to or well past the $300,000mark in the vast majority of major centres, and affordability of single-family homes diminishing, the demand for attainable product will rise in tandem, bolstering the growing condominium segment in the years ahead.
• The upper-end of the market continues to be a strong indication of the overall health of Canada’s housing sector.  Typically the first segment to soften in a downturn, luxury homes posted record sales activity in 2010, and demand is expected to remain solid in 2011.  Strong sales in the high-end will continue to prop up average prices.
• In the year ahead, federal, provincial and local stimulus in the form of continued infrastructure spending and capital projects will be a considerable boon to economic stability and employment, providing consumers the confidence to move forward with real estate purchases.
• Volatility in the money markets will continue to drive buyers to the tangibility of homeownership, both as a reliable long-term investment and a form of shelter, particularly given low vacancy rates and a lack of new rental construction in a number of major centres.