OTTAWA -- An increase in the supply of homes for sale will cut the pace of housing price increases by more than half next year, a major real estate firm predicted Wednesday.

"Homebuyers across the country will breathe a sigh of relief in 2007, thanks to a nationwide influx of new listings that is expected to slow price appreciation in major Canadian centres," RE/MAX said in its latest housing price outlook 

After four years of double-digit gains, the average price of a home is predicted to climb a modest five per cent to $290,000 next year, it said.

Still, all but three of the 17 cities it surveyed Kitchener-Waterloo, Ont., St. John's, N.L., and Charlottetown will see further home price increases next year ranging from three to 10 per cent, it said.

However, only two Calgary and Edmonton will see double-digit price gains again next year, and even in those cities the increases will be just barely in double digits, rising by 10 per cent in each, and only a fraction of the increases seen this year, the report forecast.

Both cities have posted substantial gains this year with prices in Calgary rising 40 per cent to an average of $350,000, and in Edmonton by 25 per cent to $265,900.

The report noted affordability, especially in those and other western cities, is eroding.

"Affordability is one of the more serious issues facing today's real estate consumer ... ," said Elton Ash, RE/MAX regional executive vice-president for Western Canada.

Buyers, however, are responding by considering alternatives to single-detached homes such as semi-detached and row housing, town houses, and condominium apartments, he said. The introduction of longer-term mortgages up to 35 years from the traditional 25 years is also helping buyers cover the higher costs.

However, a report earlier this week said the steady increase in house prices and mortgage rates in recent years has made renting relatively more financially attractive than buying. The Scotiabank report found the monthly mortgage payment on an average resale home has increased to $800 more than the monthly rent on a two-bedroom apartment, the largest gap in 16 years, and up from $575 last year and what was only $250 in 1997.

And RE/MAX forecast that, with few exceptions, there will be a decrease or at least no increase in sales next year, although demand will remain strong in all cities, it said.

While the outlook said the Canadian housing market will not deteriorate as the U.S. housing market has, Statistics Canada reported Wednesday that the housing sector has gone from being one of strongest leading economic indicators last spring to one of the weakest now.

However, RE/MAX forecast that nationally462,000 homes would be sold next year, making it the third best year on record, although that would be down four per cent from this year.

Strong economic fundamentals, especially high consumer confidence, low unemployment, and no further interest-rate increases, will continue to fuel healthy residential real estate activity across the country, it said.

The highest percentage increase in sales is expected to occur in Saskatoon, where sales are forecast to climb seven per cent, followed by Edmonton with a five percent increase, and then Regina and the Hamilton-Burlington market with increases of two per cent. Vancouver, Kelowna, B.C., Winnipeg, Ottawa, Montreal and Saint John, N.B., are all projecting sales volume on par with last year's levels.

© CanWest News Service 2006