Thu, January 7, 2010, By QMI Agency

Canadian real estate prices are likely to surge in the first half of this year, before higher interest rates and more houses available on the market dampen gains, a survey said.

The market will be building on momentum set in the final quarter of 2009 when property prices hit new highs, realtor Royal LePage said. The price of standard two-storey homes rose 5.2%, while detached bungalow prices jumped 6% in the quarter compared with the previous year.

"The Canadian real estate market enters 2010 with considerable momentum from an unusually strong finish to the previous year," said Phil Soper, president and chief executive, Royal LePage Real Estate Services. “This demand, coupled with a typical seasonal undersupply of homes for sale, should cause home prices to continue to appreciate significantly during the early months of the year.”

The government and the Bank of Canada have expressed concern about the surging property markets, with record low interest rates tempting consumers to take on bigger mortgages. Finance Minister Jim Flaherty has said he’s monitoring the situation closely and may be prepared to take action to cool the market.

Royal LePage says that won’t be necessary. A combination of higher interest rates expected later in the year, coupled with more houses on the market and an erosion of affordability as prices rise will serve to reign in the market.

The average price of detached bungalows hit $315,055 in the fourth quarter, with a two-storey home costing on average $353,026, Royal LePage says. A condominium on average cost $205,756.

St Johns saw amongst the biggest gains in bungalow prices in the quarter, followed by Fredricton, Vancouver and Halifax.

Halifax saw varied gains across all surveyed housing types in comparison to the fourth quarter 2008, the survey said. The only places to see falls in the period were Edmonton and Regina.

For standard two-storey homes, St Johns, Montreal and Winnipeg led the market.