Real estate up, down or flat? 5 factors that could affect home prices in 2017: Don Pittis

Whether you are looking to buy or deciding if this is the year to sell, the question on many minds both at home and abroad is, "Will Canadian real estatekeep booming?" For years now, predictions that house prices would stop climbing, or even crash, have repeatedly proven false. Could 2017 be the year?

Here's a lookat fivefactors that could affect Canadian real estate in 2017.

1. U.S. Federal Reserve's interestrates

Although the Canadian and Americancentral banks set their interest rates independently, the rate set by U.S. Federal Reserve Chair Janet Yellenhas a huge impact on Canadian mortgage rates. That's because mortgage lenders take their cue from global bond rates set in New York. Why lend to homebuyers at less than you could get on the same money in safe bonds?

When she increasedrates by a quarter of a percentage pointin December, Yellen implied there would be three more rate rises in 2017. That means prospective Canadian homebuyers should expect mortgage rates to get more expensive in the coming year, though many market commentators have expresseddoubts thatYellen will move that fast.

2. Canadian economy

If Canadians feel real estate prices are going to stay strong, a small rise in interest rates won't necessarily put them off buying a family home. But rising rates plus a weakening Canadian economy couldconspire to reduce the total number of domestic buyers and put downward pressure on the market.

Predictions for the Canadian economy have been all over the map as analysts balance a resurgence inoil and gas, rising manufacturing and a weaker loonie against fears for trade in a Donald Trump-dominated North America. Last week, a British think-tank, theCentre for Economics and Business Research, predicted Canadian growth would stall at twoper cent as theeconomy slipsfrom 10th place to 12th, behind Indonesia and South Korea.

3. Foreign buyers

The Canadian Press news agency declared the "foreign investor"Canada's business newsmaker of the year. And while many have scoffed at the impact of foreign buyers on the domestic real estate market, there is little question that a sudden decline of outside buyers, especially from China, could have a slowing effect on Canadian house prices.

The importance of the investment from China is its absolute size. Not only the wealthy, but millions of middle-class investors are looking for places to stash money as the Chinese currency falls. So far the Chinese government has failed to stop the flood of money out of the country, but that could change.

4. Construction

It used to be saidthat landprices could never fall because "they ain't makin' any more of it."Now that a major part of the real estate market is not just suburban building lots buthighrise condos, that is no longer strictly true.

So far, there has been no shortage of real estate developments in Canada's priciest cities. Nor has there been any shortage of buyers to snap up newly constructed flats. The government's Canada Mortgage and Housing Corporation and real estate analysts will be watching carefully to see whether construction and potential buyers stay in balance.

5. Government regulation

A wild card in the housing market is how governments react to changes in real estate prices.No matter how strong their stated commitment to market forces, as we've seen at both the federal and provincial levels,governments are willing to meddle when they get blamed for prices that are unaffordable.

The trouble isa sudden change in rules, such as the tax on foreignbuyers in Vancouver, can cause equally sudden distortions in the expected path of house prices. Ifprices were to begin to fall, inevitably governments could become worried about the impact on the wider economy, in which real estate has become a reliable driver of jobs and growth.

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